US growth slows as new Covid variants hit the economy

In the third quarter of the year, the economic growth in the US slowed sharply as the fast-spreading Delta variant discouraged customer spending.

The economy grew at an annualized rate of only 2%, down from 6.8% in the previous quarter. Results came after the US faced supply chain problems, growing inflation, and new restrictions in some areas. However, infection rates are dropping, and some experts believe that the growth rate will soon start rising. On a non-annualized basis, the growth number was around 0.6%.

During the third-quarter report, the Commerce Department said that a resurgence of coronavirus cases resulted in restrictions and delays in reopening businesses in some states. 

Besides the current situation, sales of big-ticket manufactured goods decreased by around 25% during the period. In particular, purchases of new cars dropped as costs increased in the middle of a shortage of semiconductors.

Economy Forecasts and the actual situation

In the meantime, growth in the US services sector fell to 7.8%, as people spent less on staying in hotels and eating out.

The US economy declined sharply in 2020 since the pandemic hit, but it managed to regain some losses in the first half of this year. Since then, the recovery has frozen because of a surge in Delta infections. In addition to that, the slow speed of the vaccination also affected the recovery process and economic growth. In the meantime, inflation hit 5.5% in September, with global supply chains facing difficulties to meet rising consumer demand.

The Federal Reserve said that the high prices would be temporary while having no immediate plans to increase interest rates to cool things down. However, later this year, it expects to start paring back its pandemic-era economic stimulus.

Managing director at Charles Schwab UK, Richard Flynn, said that today’s disappointing GDP data would increase investor attention about the strength of the US economy.

However, a chief investment officer of Global Private Banking and Wealth at HSBC, Willem Sels, said he anticipated the slowdown to be temporary. He added that as companies restore their incredibly low inventories, demand should remain strong, and activity should finally pick up. Willem Sels said they think consumption will bounce when customers grow more confident. He explained that in his opinion, people might want to spend their savings during the holiday season as many households managed to save more money during the lockdown.