The growth spurt in the U.S. economy in 2021 likely peaked in the spring, according to economists who expect slower but still strong expansion next year.
Widespread reopening of businesses, rising vaccination rates and a large injection of government pandemic aid this spring have helped propel rapid gains in consumer spending, the main engine of the economy. But that spurt of economic growth is starting to ebb, economists say.
“We have moved into a more moderate expansion phase,” said Ellen Zentner, chief US economist at Morgan Stanley..
“We’re past peak growth, but that doesn’t mean something more sinister is going on here that we’re about to drop sharply.”
Instead, economists expect the economy to continue growing solidly over the coming year, fueled by job gains, accumulated savings and continued budget support. Longer term, they predict the expansion will gradually cool down to a more stable post-pandemic pace.
Economists polled this month by the Wall Street Journal estimated on average that the economy had grown at a seasonally adjusted annual rate of 9.1% from April to June. It would mark the second-fastest pace since 1983, surpassed only by the rapid rebound last summer when businesses began to reopen and governments began to ease restrictions related to the pandemic.
Many economists also believe that U.S. gross domestic product exceeded pre-pandemic levels in the second quarter.
Survey respondents see growth slowing to a rate of 7% in the third quarter and declining to a rate of 3.3% in the second quarter of 2022.
They predict the economy will grow 6.9% this year, measured from the fourth quarter of last year to the same period of 2021, then shrink to 3.2% next year and 2.3% in 2023. .
Along with more subdued growth, rates of job creation and inflation are also expected to slow, economists said.
“This is to be expected. You shouldn’t expect 9% growth forever,” said Michael Feroli, chief US economist at JPMorgan Chase & Co. “We’re very confident we’ll see a growth significantly above trend in the second half of the year.
After rising steadily since the fall, 10-year Treasury yields have edged down over the past three months as investors take into account the potential for weaker growth, said Joe Brusuelas, chief economist at RSM.
Consumer spending rose 5% in March after Congress and the White House passed a $ 1.9 trillion pandemic relief package that sent checks for $ 1,400 to many households. Money was reaching wallets at the same time many people were getting vaccinated and venturing out more as service providers reopened. Monthly spending increases have slowed since then as the initial stimulus effect wears off.
“May was crazy,” said Zach Schneider, co-owner of S&S Hardware in St. Paul, Minn., Who estimated sales this month were 17% to 19% higher than in May 2019.
“Not only were we increasing the number of visitors, but we were also increasing our average transaction, attracting a lot of people making impulse purchases,” he said.
Sales have since cooled, he said, “but year over year we keep moving forward.”
Inflation also surged in the spring and early summer, with household spending outstripping the ability of businesses to keep pace. Consumer prices rose 5.4% in June from a year earlier, the fastest pace since 2008, the Labor Department reported.
As growth slows, companies will have more time to find workers, clear back orders and increase production, although many supply chain bottlenecks persist. The economists surveyed see inflation as measured by the department’s consumer price index drop to 4.1% in December compared to the previous year and to 2.5% by the end of 2022.
Several forces are likely to keep economic growth strong in the coming quarters. On the one hand, millions of people who are unemployed or not looking for work are likely to find a job, which will give them income to spend. September could be a pivotal month, as schools widely reopen across the country and extended unemployment benefits expire across the country.
Consumers were also an important cash buffer during the pandemic. Americans were saving at an annualized rate of $ 2.3 trillion in May, nearly double what they were saving in May 2019. While consumers used some of that money to pay off debts or book vacations , there is room for more spending.
“You can’t eat out twice a night,” said Steven Blitz, chief US economist at TS Lombard. “Reopenings force people to spend money, but not everything can be spent in a month. “
The federal stimulus, meanwhile, has not entirely disappeared. The federal government on Thursday began sending monthly payments of up to $ 300 per child as part of an expanded child tax credit.
This new phase of the recovery carries its share of risks. While many economists expect recent price pressures to be temporary, it is possible that the costs of some goods and services will push inflation up steadily.
One of these concerns is housing costs. Homeowners’ equivalent rents – the Ministry of Labor’s estimate of what homeowners would have to pay each month if they rented their own homes – have yet to rebound much. But some economists warn those prices could start to rise quickly, reflecting recent rapid increases in home prices.
Another risk comes from the labor market, which has recovered more slowly than many economists anticipated earlier this year. The US economy is still short of about 7 million jobs from pre-pandemic levels, and some obstacles to job growth could be lasting.
Many Americans retired earlier than expected during the pandemic and will never return to the workforce. Others have been out of work for months, increasing the risk that their skills have atrophied or that employers may think they have. Mismatches between industries and places where jobs are available and unemployed seekers could hamper hiring for months.
“I’m a little worried about whether there will be structural underemployment on the other side of all of this,” Feroli said.
—Anthony DeBarros contributed to this article.
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