U.S. economic growth slowed more than expected in the third quarter to the softest pace of the pandemic recovery period as snarled supply chains and a surge in COVID-19 cases throttled spending and investment.
Gross domestic product expanded at a 2% annualized rate following a 6.7% pace in the second quarter, the Commerce Department’s preliminary estimate showed Thursday.
The deceleration reflected a sharp slowdown in personal consumption, which grew at just a 1.6% pace after a rapid 12% jump in the prior period. Shortages, transportation bottlenecks, rising prices and the delta variant of the coronavirus weighed on both goods and services spending.
The median forecast in a Bloomberg survey of economists called for a 2.6% increase in GDP. U.S. stock index futures held gains, while the dollar fell and Treasury yields rose.
The latest data underscore how unprecedented supply constraints are holding back the U.S. economy. Understaffed and short of necessary materials, producers are struggling to keep up with demand. Service providers, who face similar pressures, fared better than manufacturers during the quarter despite the pickup in infections.
While supply chain challenges are expected to linger well into 2022, subsiding COVID-19 infections and elevated savings should support stronger household spending in the final three months of the year.
“Looking ahead, we see a stronger pace of growth in the fourth quarter on a rebound in household spending, albeit with downside risk from supply chain dislocations and shortages that could be a constraint for the economic expansion over coming months,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note.
Persistent supply constraints paired with other reopening effects have also driven up prices for a variety of products, spurring concerns about the breadth and duration of the recent spike in inflation.
The personal consumption expenditures price index excluding food and energy costs, an inflation measure followed closely by Federal Reserve officials, remained elevated, growing an annualized 4.5% last quarter after a 6.1% jump in the prior three months.
