Shoppers in New York, the US, March 25 2021. Picture: JEENAH MOON/REUTERS
Shoppers in New York, the US, March 25 2021. Picture: JEENAH MOON/REUTERS

US growth missed forecasts in the second quarter as the effects of supply-chain constraints reverberated through the economy and took the shine off one of the biggest gains in consumer spending in decades.

GDP expanded at a 6.5% annualised rate after a revised 6.3% pace in the first quarter, the commerce department’s preliminary estimate showed on Thursday. Federal government outlays, residential investment and inventories weighed on the figure.

Personal consumption, the biggest part of the economy, advanced an annualised 11.8%, exceeding forecasts.

The inflation-adjusted value of domestically produced goods and services climbed to an annualised $19.36-trillion, eclipsing its pre-pandemic peak.

The median forecast in a Bloomberg survey of economists called for an 8.4% increase in second-quarter GDP. Stock-index futures climbed after the report, the yield on the 10-year Treasury note rose and the dollar weakened.

Inventories took a 1.1 percentage points bite out of second-quarter GDP, while residential investment reduced growth by about 0.5 percentage point.

However, Americans had both the wherewithal and the opportunity to ramp up spending on services such as dining out amid holidays, government aid and a broader reopening of the economy. Services added 5.1 percentage points to second-quarter growth. Outlays for merchandise remained solid as well.

Savings drop

Looking ahead, economic growth will be challenged by waning federal support and lingering supply and labour constraints. The report showed the saving rate dropped to 10.9% in the second quarter from 20.8%, indicating Americans are spending cash built up during the pandemic.

At the same time, the rapidly spreading Delta variant of Covid-19 presents risks to the spending outlook.

Businesses have struggled to keep pace with the outpouring of pent-up demand, pushing prices skyward and eroding recent wage gains. The personal consumption expenditures price index excluding food and energy costs, followed closely by Federal Reserve officials, climbed an annualised 6.1% in the second quarter, the biggest gain since 1983.

Unlike output, the jobs market is far from reaching its pre-pandemic strength. The Fed’s mandate of supporting a robust labour market recovery — along with added uncertainty about the Delta variant — suggest the central bank is not rushing to remove monetary policy support.

“We’re not there. And we see ourselves as having some ground to cover to get there,” Fed chair Jerome Powell said at a press conference on Wednesday after the federal open market committee (FOMC) held interest rates in a range near zero and maintained its pace of asset purchases until “substantial further progress” was made on employment and inflation.

Supply shortages and logistics challenges are proving to be a lingering headwinds for companies including Apple, Fastenal and Whirlpool, according to recent earnings calls.

Constraints have also led several economists to downgrade US growth forecasts in recent weeks for the remainder of the year.

Bloomberg News. More stories like this are available on bloomberg.com

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