US second quarter economic growth revision undershoots expectations

The US economy grew at a slower pace than expected in the second quarter of this year as Americans reined in spending despite Covid restrictions easing in many states over the period, according to official figures published today.

The Bureau of Economic Analysis revised the US economy second quarter annualised growth rate up to 6.6 per cent from its previous estimate of 6.5 per cent.

Economists polled by Reuters had expected the upward revision to take the second quarter expansion rate to 6.7 per cent.

The weaker than anticipated revision was driven by analysts over estimating how much Americans spent in the second quarter. Although personal consumption was revised up 0.1 per cent to 11.9 per cent, analysts had expected it to be increased to 12.2 per cent.

Consumer spending is estimated to represent around two thirds of the US economy.

The US economic recovery from the depths of the Covid crisis has gathered pace between April and June, driven by the American vaccination programme ramping up and allowing consumer facing businesses that rely on social and face-to-face contact to generate income to fully roepen.

The American economy grew 6.3 per cent in the first quarter of this year.

The US economy is currently suffering from severe supply-side constraints that are limiting businesses’ ability to ramp up production in response to high demand.

Supply chain bottlenecks have left firms short of key inputs and have put upward pressure on prices for commodities and raw materials.

Michelle Meyer, chief US economist at Bank of America Securities, said: “This is a speed bump due to the interaction of Delta and supply-side constraints.” 

“We still believe the foundation for the economy is solid and all signs point to strong underlying demand.”

Jobless claims jump for first time in over a month

Separate data published today showed new US jobless claims rose for the first time in five weeks, jumping by 4,000 to 353,000.

The rise comes despite large swathes of the US economy suffering from severe workers shortages. 

Concerns about contracting Covid amid soaring case numbers in the US driven by the Delta variant, a lack of childcare provision and younger workers re-entering education or retraining has constricted labour supply.

US businesses may be reducing headcount due to greater uncertainty over the potential impact of the Delta variant on the trajectory of American economic recovery in the coming months.

The figures come as markets around the world brace for chair of the US Federal Reserve, Jerome Powell, to deliver his keynote speech at the Jackson Hole monetary policy symposium tomorrow.

Powell is expected to elaborate on the central bank’s timeframe for beginning to gradually wind down its asset purchase programme, which currently sees the Fed buy $120bn in Treasuries and mortgage backed securities each month.

The Fed has reiterated it is committed to achieving full employment in the labour market alongside hitting an average inflation rate of two per cent.