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The U.S. economy grew at an annual rate of 2.0 percent in the third quarter amid the Delta variant-fueled COVID-19 surge and supply chain bottlenecks, marking a significant slowdown from the second quarter, the U.S. Commerce Department reported Thursday.
The 2.0-percent growth pace was lower than the 2.8-percent rate estimated by economists surveyed by The Wall Street Journal.
The latest quarterly growth rate marks a sharp slowdown from the 6.7 percent pace in the second quarter and the revised 6.3 percent in the first quarter.
"The increase in third quarter GDP reflected the continued economic impact of the COVID-19 pandemic," the Commerce Department's Bureau of Economic Analysis (BEA) said in an advance estimate.
"A resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country," the bureau noted. "Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased."
Jason Furman, former chairman of the White House Council of Economic Advisers, tweeted that government spending in the form of stimulus payments "fell a lot" in the third quarter and "likely played some role in the slowdown in personal consumption growth."
"Anemic business fixed investment is slowing the U.S. economy, which continues to be constrained as well by weak demand, supply bottlenecks, labor shortages, and concerns about the delta variant of COVID-19," according to an analysis co-authored by Furman, who is a senior fellow at the Peterson Institute for International Economics (PIIE) and a Harvard University professor, and his colleague Wilson Powell III.
Furman and Powell noted that overall, the economy is "in better shape" than was expected earlier this year, but "disappointing" compared to the optimistic expectations from the spring and summer.
"Supply chain constraints, which are causing many prices to rise sharply and making many goods simply unavailable, were evident in the underlying details," Jay H. Bryson, chief economist at Wells Fargo Securities, said in an analysis.
Bryson said the "only saving grace" was that inventories did not decline as much in the third quarter as they did in the second quarter.
"Without that positive contribution from inventories, the U.S. economy would have essentially stalled in the third quarter," Bryson added.
The increase in real GDP in the third quarter reflected increases in private inventory investment, personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment, according to the BEA report.
The deceleration in real GDP in the third quarter was partially driven by a slowdown in PCE, which grew at 1.6 percent after a 12-percent jump in the prior quarter, the report showed.
From the second to third quarter, spending for goods was down, led by motor vehicles and parts, and services decelerated, led by food services and accommodations, according to the report.
Looking forward, Furman and Powell said there is some reason to hope for improvement in investment in coming quarters as new orders for capital goods are high and stronger investment growth typically follows periods of slower investment growth.
Bryson, meanwhile, noted that his team expects that growth will rebound, "albeit not to the pace seen earlier this year, as supply chains become unglued."
"The need to re-stock empty shelves and continued resilience in consumer spending should underpin spending growth. But unblocking supply chains will take time," Bryson said.
Continued supply chain disruptions have pushed up inflation and could pose a risk to the economic outlook, according to analysts.
The Labor Department recently reported that U.S. inflation remained elevated in September as supply chain disruptions had persisted for months, with the consumer price index rising 5.4 percent over the 12 months ending September.
U.S. Treasury Secretary Janet Yellen said on Sunday that on a 12-month basis, inflation will remain high into next year because of recent events, but she expected inflation to fall to acceptable levels in the second half of next year.
Bryson said his team expects the rate of consumer price inflation, which rose to a 31-year high in the third quarter, to slow next year, but "we also do not think that it will recede all the way back to 2 percent, as some policymakers at the Federal Reserve expect."