U.S. Economy Likely Slowed in Third Quarter on Delta Surge, Supply Crunch

Factors that fuelled spending faded, including an infusion of government stimulus, business reopenings and rising vaccination rates.

By guest author Sarah Chaney Cambon from the Wall Street Journal

Economic growth in the third quarter likely slowed because of the Delta variant of Covid-19, which is now abating, and supply-chain constraints that could persist into next year.

All captions and graphics courtesy by the Wall Street Journal

Economists surveyed by The Wall Street Journal estimated that gross domestic product grew at an annual rate of 2.8 % in July through September. Such a pace would exceed the 2.3 % growth rate clocked in the year preceding the pandemic, but mark a sharp slowdown from robust gains earlier this year. The Commerce Department is scheduled to release its estimate of U.S. GDP at 8:30 a.m. ET on Thursday.

GDP grew at a historically fast annual rate of 6.7 % in the second quarter as an infusion of government stimulus, widespread business reopenings and rising vaccination rates fuelled spending. Those spending drivers faded in the third quarter. Two additional factors arose over the summer to damp third-quarter growth: a surge in virus cases and deepening supply bottlenecks.

Supply-chain disruptions such as backups at U.S. ports and overseas manufacturing disruptions contributed to a sharp increase in inflation and pose a risk to the economic outlook. Despite supply-side challenges, many analysts expect the economy to regain momentum in the final months of the year as long as Covid-19 cases continue to fall.

“We had a temporary set of impediments coming from a resurgence of the coronavirus that should ease as we move through the quarters ahead,” said Carl Tannenbaum, chief economist at Northern Trust.

Consumers are venturing out more this fall. U.S. hotel occupancy was at 65 % for the week ended Oct. 16, the highest level since mid-August, according to data from STR, a global hospitality data and analytics company. In the week ended Oct. 27, the number of diners seated at restaurants was down 5 % from the same period in 2019—before the pandemic—a less severe decline than in mid-September, according to reservations site OpenTable.

As the pandemic eased over the past month, business picked up at Tamale Addiction, said Adrian Paredes, co-owner of the company in the Austin, Texas, area. That marked a shift from over the summer, when the Delta variant caused the cancellation of several events where the vendor would normally sell its organic tamales.

In early October at the Austin City Limits Music Festival, Tamale Addiction sold 18000 tamales of various flavours including pork with tomatillo sauce, chicken with mole sauce, beans with goat cheese, and spinach with caramelised onions. Crowds flooded the event, Mr. Paredes said.

“I saw people gathering with joy,” he said. “It was a normal event.”

Mr. Paredes recently started receiving more requests for food trucks to serve workers who are back at the office. People are also ordering tamales for events such as Halloween parties. He expects sales to be stronger at the end of this year compared with last year.

Shoppers are well-positioned to open their wallets this holiday season because of rising wages and savings amassed from several rounds of federal stimulus. Americans were saving at an annualized rate of USD 1.7 trillion in August, up from USD 1.4 trillion in February 2020, according to the Commerce Department.