The US economy grew at a pace of 2.3% in the third quarter, slightly better than expected, the US Department of Commerce said on Wednesday. But the prospects for a strong rebound over the next few months are clouded by the rapid spread of the Omicron variant.
The third and final look at the performance of the gross domestic product – or the country’s total production of goods and services – was higher than last month’s estimate, which showed growth of 2.1%. This improvement is mainly due to higher consumer spending and business restocking than initially estimated.
The 2.3% gain in the third quarter follows explosive growth in the first half of the year as the country was emerging from the pandemic, at least economically. Growth was 6.3% in the first quarter and 6.7% in the second quarter. The emergence of the Delta variant over the summer was responsible for much of the slowdown in the third trimester.
Now, with the emergence of the Omicron variant adding to high inflation and lingering supply chain issues, there are fears that growth may be limited by 2022.
All major US markets rallied this week amid renewed optimism that Omicron could be more manageable, but all are in negative territory for the past 30 days.
Oxford Economics has reduced its forecast for economic growth for the current quarter from 7.8% to 7.3%, which would still represent a significant rebound from the slowdown in the third quarter.
After Democratic Senator Joe Manchin expressed his opposition to his party’s spending plans, Goldman Sachs cut its GDP forecast to 2.0% from 3.0% for the first quarter, to 3.0% from 3, 5% for the second quarter and 2.75% against 3.0% in the third quarter.
Another factor that could slow the economy in 2022 is inflation, which has reached its highest level in nearly four decades. This prompted the US Federal Reserve to start pulling back the massive support it has provided to the economy, shifting from trying to spur job growth to tackling rising consumer prices. .
Uncertain future
Economists expect GDP growth this year to reach around 5.5%. It would be the best performance since 1984.
Wednesday’s report showed that consumer spending, which accounts for two-thirds of economic activity in the United States, grew at a rate of 2% in the third quarter, down from the 12% increase in the April to June quarter, but up from last month’s estimate, which showed a quarterly gain of 1.7%.
Yet it is the uncertainty of the future that now preoccupies economists. “The Omicron variant presents a short-term downside risk, as do supply chain disruptions and shortages, which could be a strain on households and businesses in the coming months,” said Rubeela Farooqi, Chief Economist for the United States at High Frequency Economics.