U.S. economic growth slowed sharply in the third quarter amid a flare-up in COVID-19 infections, the government confirmed on Wednesday, but activity has since picked up, putting the economy on track to record its best performance this year since 1984.
Gross domestic product increased at a 2.3% annualized rate, the Commerce Department said in its third reading of GDP growth for the July-September quarter. That was up from the 2.1% pace estimated last month but was still the slowest since the second quarter of 2020, when the economy suffered a historic contraction in the wake of tough mandatory measures to contain the first wave of coronavirus cases.
Economists polled by Reuters had forecast third-quarter GDP growth unrevised at a 2.1% pace. The economy grew at a 6.7% rate in the second quarter.
Last quarter’s slower growth pace also reflected shortages of motor vehicles amid strained global supply chains as well as a decline in pandemic relief money from the government to businesses, households and state and local governments.
Growth was also hampered by Hurricane Ida, which devastated U.S. offshore energy production at the end of August.
The economy has, however, regained speed. Consumer spending increased solidly in October and manufacturing has been buoyant. The trade deficit narrowed sharply in October as exports surged to a record high and businesses have been steadily rebuilding inventories. The unemployment rate is at a 21-month low of 4.2%.
According to a Reuters survey of economists, growth this year could come in at 5.6%, which would be the fastest since 1984. The economy contracted 3.4% in 2020.
But the emerging winter wave of coronavirus infections, driven by the Delta and highly contagious Omicron variants, could significantly restrain growth starting in the first quarter. Growth prospects also took a hit from moderate Democrat Senator Joe Manchin’s declaration on Sunday that he would not support President Joe Biden’s signature $1.75 trillion domestic investment bill known as Build Back Better (BBB).
Goldman Sachs on Sunday cut its GDP growth forecast for the first quarter to a 2% rate from a 3% pace.
Other economists have followed suit, with a failure to pass the BBB legislation seen among others hurting consumer spending and slowing the labor market recovery.
“The surge in COVID cases is dampening momentum heading into 2022,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics in New York. “There is some chance that BBB can be overhauled to satisfy Manchin’s concerns, but at this stage the chances of passage have dropped considerably.”