GDP growth for third quarter won’t be pretty, but it should get better

Containers are stacked on the deck of cargo ship Seamax New Haven as it’s below manner in New York Harbor in New York Metropolis, U.S. October 13, 2021.

Brendan McDermid | Reuters

The U.S. financial restoration slowed sharply within the earlier three months, as merchandise remained stranded at usually bustling ports, employers struggled to seek out employees and customers battled with rising costs.

When the Commerce Division releases its first estimate Thursday for third-quarter annualized gross home product progress, it doubtless will present a rise of simply 2.8%, in response to Dow Jones estimates.

Whereas that type of quantity would have appeared completely wonderful in pre-Covid occasions, it truly can be the slowest tempo for the reason that restoration started in April 2020 off the shortest but steepest recession in U.S. historical past.

Furthermore, there’s an opportunity that the economic system did not develop in any respect within the quarter – the Atlanta Fed’s GDPNow tracker lowered its estimate to 0.2%, with the latest downgrade the results of a lowered outlook for presidency spending and actual internet exports.

Economists, although, aren’t fearful. They largely say that the slowdown is the results of components, principally associated to produce chain bottlenecks, that may ease within the months forward and permit the restoration to proceed.

“The weak spot is a operate of provide distortions greater than something,” stated Joseph LaVorgna, chief economist for the Americas at Natixis. “The economic system continues to be essentially sturdy, and I would not take a look at this one quarter of being reflective of the place we’re going.”

Natixis, the truth is, has a barely rosier outlook on the quantity for GDP, which is a sum of the products and providers the economic system produces. The agency sees progress coming in at a 3.3% tempo, down sharply from the 6.7% enhance within the second quarter and the bottom determine for the reason that staggering 31.2% plunge within the pandemic-scarred Q2 of 2020.

“To the extent that we have not absolutely reopened, not less than when it comes to journey and leisure actions, issues are more healthy than what they appear,” LaVorgna stated. “I do not take a look at this as an indication of issues to return.”

CNBC’s Rapid Update survey of forecasters signifies median progress expectations of two.3% for the third quarter.

Nonetheless, the economic system faces a number of challenges.

Dozens of ships are stuck at jammed California coast ports, ready to ship some $24 billion of products, in response to a latest Goldman Sachs estimate. The bottlenecks are the results of outsized demand for items over providers at a time when firms are having a tough time filling vacant positions. A record 4.3 million workers left their jobs in August, leaving the economic system with 10.4 million employment openings, in response to the Labor Division.

There’s dim hope that the availability chain points will work themselves out anytime quickly. A latest Dallas Federal Reserve survey confirmed 41.3% of respondents suppose it should take not less than 10 months for provide chains to return to regular, and 64.5% of Texas corporations stated they’ve seen disruptions or delays with provides, up from 35.5% in February.

Different financial points

These issues are in flip triggering a run on inflation that’s near its highest point in 30 years as items turn into extra scarce and prices of supplies proceed to rise.

LaVorgna stated he worries in regards to the potential for swelling power prices to thwart progress sooner or later.

“Manufacturing continues to be about 15 to twenty% beneath the place it was pre-pandemic,” he stated. “The recipe for greater power prices may be very current. That is what’s going to damage the economic system much more than the availability chain points will.”

Within the meantime, expectations for progress have been recalibrated.

Goldman Sachs has lowered its GDP outlook a number of occasions, and took it down additional Wednesday for the third quarter to 2.75%. The agency has ratcheted down its 2021 and 2022 full-year outlooks to five.6% and 4%, respectively, from already-lowered estimates of 5.7% and 4.4%.

Federal Reserve policymakers are having to take care of the concurrent forces of slowing progress and rising inflation, elevating comparisons to the stagflation of the late Seventies and early Eighties. Merchants have upped their bets to when the Fed will begin elevating rates of interest once more, with the fed funds futures market now anticipating the preliminary hike in June 2022 and not less than yet one more earlier than the top of the 12 months.

Nevertheless, most economists dismiss the chance of stagflation, as an alternative anticipating a extra regular set of circumstances to prevail.

That might imply a substantial acceleration of GDP within the fourth quarter adopted by a 2022 that will begin to resemble the pre-pandemic U.S. economic system. Jefferies economists, as an example, see the third quarter coming in at a 3.8% progress charge earlier than giving strategy to an 8% burst to finish 2021.

Citigroup is on the lookout for simply 2.4% in third-quarter progress, however economist Veronica Clark famous that “the slower tempo can broadly be summarized on account of supply-side constraints versus a mirrored image of softer demand.”

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