The U.S. economy grew 1.6 % in the second quarter, returning to prepandemic size

By guest author Ben Casselman from the New York Times

Vaccinations and federal aid helped lift the U.S. economy out of its pandemic-induced hole this spring. The next test will be whether that momentum can continue as coronavirus cases rise, masks return and government help wanes.

Gross domestic product, the broadest measure of economic output, grew 1.6 percent in the second quarter of the year, the Commerce Department said Thursday, up from 1.5 % in the first three months of the year. On an annualized basis, second-quarter growth was 6.5 %.

The growth, fuelled by strong consumer spending and robust business investment, brought output, adjusted for inflation, back to its prepandemic level. That is a remarkable achievement, exactly a year after the economy’s worst quarterly contraction on record. After the last recession ended in 2009, G.D.P. took two years to rebound fully.

But the second-quarter figure fell short of economists’ forecasts, and the recovery is far from complete. Output is significantly below where it would be had growth continued on its prepandemic path. Other economic measures remain deeply depressed, particularly for certain groups: The United States still has nearly seven million fewer jobs than before the pandemic. The unemployment rate for Black workers in June was 9.2 %.

Growth might have been stronger had it not been for supply-chain disruptions and labor challenges that made it difficult for many businesses to keep their shelves stocked and their stores staffed. Those issues, combined with a rush of consumer demand, contributed to faster inflation in the second quarter. Consumer prices rose 1.6 percent from the first quarter of the year to the second. Without adjusting for inflation, economic output rose 3.1 percent.

Now a new threat is emerging in the highly contagious Delta variant of the coronavirus, which has led to a surge in cases in much of the country. The Centers for Disease Control and Prevention recommended this week that even vaccinated people should wear masks indoors in some parts of the country, and some mayors and governors have reimposed mask mandates.

Few economists expect a return to widespread business shutdowns or stay-at-home orders. But if the resurgent virus leads to renewed caution among consumers — a reluctance to dine at restaurants, hesitation about booking a late-summer getaway — that could weaken the recovery at a crucial moment.

“The reason that is concerning is that this burst of activity around reopening has been driving the economy the past couple months,” said Michelle Meyer, head of U.S. economics at Bank of America. “Even a modest change in behaviour could show up more meaningfully this time around.”

And this time, workers and businesses may have to face the pandemic without much help from the federal government. Roughly half the states have cut off enhanced unemployment benefits in recent weeks, and the programs are set to end nationally in September. The Paycheck Protection Program, which helped thousands of small businesses weather the crisis, is winding down. A federal eviction moratorium will end this week if the Biden administration doesn’t act to extend it. And there is no sign that Congress intends to pass a fourth round of direct checks to households.

Nela Richardson, chief economist for ADP, the payroll processing firm, said the second quarter may stand as a high-water mark for the recovery, when federal aid was still flowing and when vaccinations and the lifting of restrictions gave people an opportunity to spend.

“All the winds were going in one direction, which was to push the economy forward,” she said. “The more interesting question is: Where do we go from here?”

www.nytimes.com