GDP grows at an annual rate of 6.5% in the second quarter, slower than expected
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By Lucia Mutikani
U.S. economic growth was strong in the second quarter, as massive government aid and COVID-19 vaccinations fueled spending on travel-related services.
Gross domestic product grew at an annualized rate of 6.5% in the last quarter, the Commerce Department said Thursday in its anticipated estimate of second-quarter GDP. The economy grew at a revised 6.3% rate in the first quarter
Economists polled by Reuters predicted GDP growth of 8.5% in the last quarter. Along with the second quarter estimate, the government released revisions to GDP data, which showed the economy to contract 3.4% in 2020, down from 3.5% as previously estimated. It was still the biggest drop in GDP since 1946.
Revisions to growth in other years and quarters have been minor. From 2015 to 2020, GDP grew at an average annual rate of 1.1%, unrevised from previously released estimates.
The National Bureau of Economic Research, the arbiter of U.S. recessions, said last week that the pandemic slowdown, which began in February 2020, bottomed out in April 2020.
Even with the second quarter marking the peak of growth in this cycle, economic expansion is expected to remain strong for the remainder of the year. A resurgence of COVID-19 infections, driven by the Delta variant of the coronavirus, poses a risk to the outlook, however. Higher inflation, if sustained, along with continued supply chain disruptions could also slow the economy.
The Federal Reserve kept its overnight key rate close to zero on Wednesday and left its bond buying program unchanged. Fed Chairman Jerome Powell told reporters the economic effects of the pandemic continue to diminish, but risks to the outlook remain.
Economists are forecasting growth of around 7% this year, which would be the strongest performance since 1984. The International Monetary Fund on Tuesday raised its growth forecast for the United States to 7.0% in 2021 and 4, 9% in 2022, up 0.6 and 1.4 percentage points. respectively, from April forecast.
President Joe Biden’s administration provided $ 1.9 trillion in pandemic relief in March, sending one-off checks of $ 1,400 to qualified households and extending unemployment benefit of $ 300 until early September . This has brought the amount of government assistance to nearly $ 6 trillion since the start of the pandemic in the United States in March 2020.
Nearly half of the population has been vaccinated against COVID-19, allowing Americans to travel, eat out and attend sporting events among service-related activities that were held back at the start of the pandemic.
Although the fiscal boost wears off and cases of COVID-19 increase in states with lower vaccination rates, consumer spending is likely to continue to rise.
Households accumulated at least $ 2 trillion in excess savings during the pandemic. Record stock prices and acceleration in house prices are bolstering household wealth. Wages are also rising as companies compete for scarce workers amid a strengthening labor market.
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A separate Labor Department report on Thursday showed initial claims for state unemployment benefits fell from 24,000 to 400,000 seasonally adjusted for the week ending July 24. Economists polled by Reuters had forecast 380,000 requests for the last week.
Claims surged during the week ended July 17, but economists attributed the increase to difficulties in eliminating seasonal fluctuations in the data. Before the pandemic, auto factories closed in early July for retooling, which caused a temporary increase in layoffs, which then reversed in the second half of July.
A global semiconductor shortage has forced some automakers to downsize or temporarily shut down their production lines.
Reporting by Lucia Mutikani; Editing by Dan Burns.