Economic growth last quarter slows sharply

WASHINGTON — Hampered by rising COVID-19 cases and persistent supply shortages, the U.S. economy slowed sharply to a 2 percent annual growth rate in the July-September period, the weakest quarterly expansion since the recovery from the pandemic recession began last year.

Thursday's report from the Commerce Department estimated that the nation's gross domestic product — its total output of goods and services — declined from robust growth rates of 6.7 percent in the second quarter and 6.3 percent in the first quarter.

The 2 percent annual growth last quarter fell below expectations and would have been even weaker if not for a sharp increase in restocking by businesses, which added whatever supplies they could obtain. Such inventory rebuilding added 2.1 percentage points.

By contrast, consumer spending, which fuels about 70 percent of overall economic activity, slowed to an annual growth rate of just 1.6 percent after having surged at a 12 percent rate in the previous quarter.

Economists remain hopeful for a bounce-back in the current October-December period, with confirmed COVID-19 cases declining, vaccination rates rising and more Americans venturing out to spend money. Most economists think GDP is rebounding to an annual rate of 6 percent or more for this current quarter.

Airlines have reported growing passenger traffic, businesses are investing more and wages are increasing as employers struggle to draw more people. A resurgence of consumer spending could help energize the economy as the year nears a close and the holidays loom.

At the same time, though, rising prices, especially for gasoline, food, rent and other staples, are imposing a burden on American consumers and eroding the benefits of higher wages. Inflation has emerged as a threat to the economic recovery and a key concern for the Federal Reserve as it prepares to start withdrawing the emergency aid it provided to the economy after the recession struck last year.

Thursday's report from the government, the first of three estimates of last quarter's GDP, showed widespread weakness. In consumer spending, purchases of durable goods like autos and appliances fell at a 26.2 percent rate. Sales of clothing and other non-durable goods slowed to a modest annual gain of 2.6 percent. And purchases of services rose at a 7.9 percent rate, down from an 11.5 percent annual rise in the previous quarter.

Businesses, too, held back. Corporate investment in equipment and plants slowed to a 1.8 percent rate of growth, after a 9.2 percent annual increase in the April-June quarter. Residential construction declined at a 7.7 percent rate after an even sharper 11.7 percent drop in the previous quarter.

Last quarter, exports declined at a 2.5 percent annual rate while imports rose at a 6.1 percent rate — a surge that has contributed to clogged ports. The gap between exports and imports subtracted 1.1 percentage points from last quarter's annual growth.

In recent weeks, viral cases have steadily fallen and many economists say they think the economy is accelerating again. For 2021 as a whole, economists generally expect growth to be about 5.5 percent. That would be the highest calendar-year expansion since the mid-1980s.