Daily Management Review

US Second Quarter Economic Growth Reaches Surpasses Pre-Pandemic Levels


US Second Quarter Economic Growth Reaches Surpasses Pre-Pandemic Levels
The gross domestic product of the United States economy cross its pre-pandemic peak as the country’s economy staged a solid growth in the second quarter with consumers spending more on goods and services helped by massive government aid and speedy vaccinations against Covid-19.
However, the growth rate of GDP as reported by the US Commerce Department was lower than what economists were expecting. That was because businesses ran down inventories further to meet the robust demand. And businesses are now finding it harder to replenish its inventory because of supply constraints resulting in shortages of goods such as motor vehicles and household appliances.
"The U.S. economy is off and running," said Scott Hoyt, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "Real GDP has fully recovered what it lost in the downturn. The economy is well ahead of much of the rest of the world, save China and some parts of southeast Asia, in its recovery from the pandemic recession"
The US government said in its advance estimate of second-quarter GDP that it increased at 6.5 per cent annualized rate in the second quarter. During the first quarter, the growth rate of the economy was at 6.3 per cent which was a revised number from 6.4 per cent pace.
The second quarter level of GDP is currently 0.8 per cent higher than its peak in the fourth quarter of 2019 – which made this the shortest recession and the fastest recovery of the economy in the history of the US. The US economy took 3-1/2 years to return to its pre-recession peak following the 2007-09 global financial crisis.
"The economy has achieved escape velocity from which there is no going back," said Chris Rupkey, chief economist at FWDBONDS in New York.
The forecasts of economists of GDP growth was at 8.5 per cent for the latest completed quarter.
Inventories contracted at a rate of $165.9 billion, slicing 1.13 percentage points from GDP growth.
During the second quarter, the GDP was brought down by trade, housing and government spending. The growth rate of the US economy was at 9.9 per cent excluding inventories, trade and government spending. A growth rate of 11.8 per cent was noted in the domestic demand in the first quarter.
According to an announcement by the US National Bureau of Economic Research, the arbiter of US recessions, the recession due to the Covid-19 pandemic had started in February 2020 and ended in April 2020.
Economists expect economic growth in the US economy to remain strong for the rest of the year even though it is estimated that the second quarter growth marked the peak of the growth cycle. For the entire year, a growth rate of 7 per cent is expected by economists which would mark the strongest growth year for the US since 1984.
Growth forecasts for the United States was boosted by the International Monetary Fund on Tuesday to 7.0 per cent for in 2021 and to 4.9 per cent for 2022 which were higher by 0.6 and 1.4 percentage points respectively compared to its estimates made in April.