The best growth of the expansion is likely behind the U.S. just as the world’s largest economy reclaims its pre-pandemic level of output.
Gross domestic product likely revved up in the second quarter, fueled by the delivery of vaccinations, the unleashing of pent-up demand for services and a mixture of government and Federal Reserve stimulus.
The median estimate of economists surveyed by Bloomberg calls for an annualized 8.5% increase in the April-June period when government data are released Thursday. That would be the fastest rate in decades, save for the 33.4% surge during last year’s third quarter after swathes of lockdowns ended.
But the second quarter is also set to mark “peak growth,” with an economic backdrop that includes risks from new Covid-19 variants, which have rattled sky-high markets in recent weeks.
“It means that the economy will be seeing a moderation in growth from the extraordinary pace that we had seen back in the spring,” said Michelle Meyer, head of U.S. economics at Bank of America Corp.
Even so, the growth trajectory will be more than double the pre-pandemic rate, Meyer said. The second-quarter report will likely show a record value of inflation-adjusted GDP. By year’s end, the level will likely eclipse the presumed value of output had the health crisis never happened and the economy instead grown at trend.
While a slowdown should be no surprise given the rapid pace of recovery, it does mean further outsize gains in employment may be harder to come by next year and inflation could subside from the fastest pace in 13 years.
At Goldman Sachs Group Inc., economists just this week revised down their growth forecasts for the final two quarters of 2021 by one percentage point to a still-strong 8.5% and 5%, respectively. They also project the U.S. will return to more trend-like growth of 1.5% to 2% in the last half of 2022.
The uncertainty is likely to mean Fed officials, who conclude a two-day meeting later on Wednesday, can be patient with removing their policy support.
“A slowdown was always in the cards,” and markets have likely turned too pessimistic about the sharpness of that slowdown, said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “Even with the delta variant, the consumer is still in really great shape.”
Personal consumption is expected to increase at an annualized pace of 10.5% in the second quarter, one of the strongest paces ever recorded. Economists see elevated savings providing consumers with the wherewithal to keep the economy motoring ahead.