US Economic Growth Surpasses Pre-pandemic Level to 6.5%

Buoyed by vaccinations and stimulus, the US economy grew 6.5% in the second quarter in another sign of recovery from the last recession, surpassing its pre-pandemic level.

Thursday's report from the Commerce Department indicated that the state's gross domestic product (GDP) increased 0.2% in the April-June quarter from 6.3% in the first quarter; however, figures fell well below the 8% prediction for the second quarter, as supply chains couldn't relate to the rapid reopening of the economy.

In fact, the resulting slowdown in inventory rebuilding subtracted 1.1% from annual growth for the fourth quarter.

Consumer spending, the main fuel for the US economy, rose for the second consecutive quarter, advancing at an annual rate of 11.8% but, spending on goods grew an average of 11.6%, and spending on services increased an average of 12% as vaccines encouraged more Americans to shop, travel and visit restaurants.

 Many analysts expect the economy to grow at a robust pace of about 6.5% throughout 2021, with consumers, and businesses, expected to continue spending, despite supply shortages and a possible resurgence of the virus in its new delta variant.

“Consumers are going to continue to drive the economic train. There is a lot of excess savings, a lot of cash in people’s checking accounts,” said Mark Zandi, chief economist at Moody’s.

Last month, employers added 850,000 jobs, much higher than the average of the previous three months, in addition to the average hourly wages, which rose 3.6%, faster than the annual pace prior to the pandemic.

Consumer confidence is at its highest since the pandemic broke out in March 2020, a major reason retail sales remain strong, while consumer prices jumped 5.4% in June, year-on-year, the highest in 13 years.

Consumer inflation showed a 3.4% annual rise in core inflation, excluding food and energy, the fastest jump since 1991.

At a press conference on Wednesday, Federal Reserve Chairman Jerome Powell said that inflation has been distorted by a temporary supply shortage linked to a rapid reopening of the economy. This shortage includes items such as furniture, appliances, clothing, and computer chips.

The economy is also receiving significant support from the Federal Reserve. On Wednesday, the Federal Reserve reiterated that it will keep its key short-term interest rate at a record low near zero to keep short-term borrowing costs low. It will also continue to buy government-backed bonds to push down long-term loan rates to encourage borrowing and spending.