While the growth reported doesn’t hit the mark, the lower growth isn’t because the economy has failed to grow necessarily, but it’s because suppliers cannot keep up with consumer demand.
What’s going on?
You see, the United States missed its mark for its economic growth expectations for the second quarter of 2021, according to economists, and this is in large part due to suppliers being unable to keep up with the increased spending of consumers.
But luckily the US economy has been bouncing back surprisingly well from the pandemic.
The US Commerce Department reported that the US failed to hit the mark when it comes to the original goal for Q2 of 2021 and that the growth rate of 6.5% during Q2 fell short of their expectations, which was 8.4% growth.
So, does that mean that the economy is failing?
Actually, while this growth doesn’t hit the mark, the 6.5% growth isn’t because the economy has failed to grow necessarily, but it’s because suppliers cannot keep up with consumer demand.
Economists were surprised as personal consumption far exceeded their estimations as excited Americans had the opportunity to ramp up spending on things like dining out.
Consumers spent nearly US$13.7 billion this quarter alone which is a record for consumer spending in the US.
“The downside surprise in the GDP numbers is mostly in the inventory component,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “In short, then, we are not disappointed by the headline GDP growth miss. We expect a big rebound in Q3 inventories.”
What are businesses saying about the inventory problem?
When Shpherdson says that they are disappointed with “the inventory component,” he is talking about how big companies are not able to keep up with demand.
Supply shortages and logistics challenges are proving to be a lingering problem for companies including Apple Inc., who have been struggling to acquire chips for their phones.
While the company saw its strongest second quarter ever, the news was overshadowed when Apple Chief Financial Officer Luca Maestri said that the company’s revenue growth would slow in the third quarter because of the chip shortage.
But a lower supply can actually do a lot of good for the economy because it means that companies can have a stronger pricing power for products as they meet customer demand.
“Given the strength of our product lineup and the demand we see, we expect to have a relatively strong pricing power for the new foreseeable future,” said Ford Motor Co. Chief Executive Officer James Farley on the company’s Wednesday earnings call.
What comes next for the US economy?
Well, the good news is that the US economy has gotten stronger than where it was before the pandemic, with unemployment down to 5.7%.
“Last year at this time, the U.S. economy was facing a near Great Depression scenario,” said chief economist Scott Anderson of Bank of the West. “Much of the leisure and hospitality and service economy was flat on its back and the U.S. unemployment rate hovered at 10.2%. What a difference a year makes.”
That doesn’t mean it’s time to throw a big party and celebrate as economists estimate that the economy is about 2.7% smaller than it would have been without COVID-19.
And, some economists still wonder if the supply issues the US is currently facing will persist into third quarter as the US economy continues to grow.
“After a blazing start to the global recovery, it is becoming increasingly apparent that the last mile will be the toughest due to supply challenges and the spread of the delta variant,” said chief economist Douglas Porter of BMO Capital Markets.
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