Labor shortages and Covid blamed for slowing of GDP to just 2% in Q3. Analysts anticipate Q4 rebound.

The Bureau of Economic Analysis today confirmed perceptions that the economy cooled in the last quarter.

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the third quarter of 2021 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 6.7 percent.

Calculated Risk comments,

The advance… report, at 2.0% annualized, was below expectations, due to several factors – a sharp decline in Motor vehicles and parts (due to supply constraints), a decline in residential investment, a decline in government expenditures and a negative contribution from trade.

Personal consumption expenditures (PCE) increased at a 1.6% annualized rate in Q3, a much slower pace than the previous two quarters.

The Associated Press reports,

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

Economists remain hopeful for a bounce-back in the current October-December period, with confirmed COVID cases declining, vaccination rates rising and more Americans venturing out to spend money. Many economists think GDP will rebound at a solid annual growth rate of at least 4% this quarter.

“The key story right now is the improving health situation,” said Gregory Daco, chief U.S. economist at Oxford Economics. “People are feeling a lot more at ease about moving about.”

And from The Wall Street Journal report,

“We had a temporary set of impediments coming from a resurgence of the coronavirus that should ease as we move through the quarters ahead,” said Carl Tannenbaum, chief economist at Northern Trust.

Consumers are venturing out more this fall. U.S. hotel occupancy was at 65% for the week ended Oct. 16, the highest level since mid-August, according to data from STR, a global hospitality data and analytics company. In the week ended Oct. 27, the number of diners seated at restaurants was down 5% from the same period in 2019—before the pandemic—a less severe decline than in mid-September, according to reservations site OpenTable.

Those optimistic assessments of the coming quarter are consistent with increased consumer confidence and retailers’ projections of robust holiday sales.

Let’s hope so.