U.S. economic growth crashed in the third quarter, as the economy grappled with the Delta variant driving a resurgence of Covid-19 infections and supply-chain disruptions.
Gross domestic product—the value of all goods and services produced in the U.S.—grew at an annualized rate of two percent from July through September, after adjusting for inflation and seasonality, the Commerce Department said Wednesday.
That was below the consensus expectation for 2.9 percent growth.
The economy grew at a better than expected 6.7 percent in the second quarter, boosted by widespread business reopenings, vaccinated Americans spending on out-of-home services and travel, and a massive infusion of government stimulus.
The third-quarter GDP growth was initially forecast to be even more robust. As late as June, analysts were forecast growth of seven to better than nine percent. But the surge in virus cases, stronger than expected inflation, and supply bottlenecks dragged the economy down to a much slower pace.
The Personal Consumption Expenditures price index increased 5.3 percent, compared with an increase of 6.5 percent in the prior period. Excluding food and energy prices, the PCE price index increased 4.5 percent, compared with an increase of 6.1 percent in the second quarter. This measure, so-called core PCE inflation, is closely watched by the Federal Reserve.
Current-dollar GDP, which is not adjusted for inflation, increased 7.8 percent at an annual rate, or $432.5 billion, in the third quarter to a level of $23.17 trillion. That was a big slowdown from the second quarter when the economy grew at an annualized rate of 13.4 percent, or $702.8 billion.
Consumer spending climbed just 1.6 percent in the third quarter, a big deceleration from the 12 percent pace of growth in the prior quarter. That was driven by the lack of durable goods sought by consumers and a fumbled handoff from goods to consumer spending as many Americans canceled travel plans and cut back on things like eating out at restaurants thanks to the Delta variant.
Residential fixed investment declined, primarily driven by a decline in home improvements and in single-family home construction. The latter fell this summer despite surging home prices as the costs of building materials and labor climbed and home builders said that they could not find workers for projects. Spending on household furniture and durable goods fell 0.22 percent.
Auto making was hard hit by the shortage of semiconductors, forcing some manufacturers to slow production in the third quarter. Motor vehicle and parts output contracted at an annualized rate of 2.39 percent.