Analysts say growth high point was likely in the second quarter
Economists have said that the effects of the rising vaccination rates, business reopenings, and government stimulus packages that fueled the U.S. economic recovery have all peaked.
Ellen Zentner, Chief U.S. economist at Morgan Stanley said that, although the days of rapid expansion may have passed, the outlook is still promising. Speaking to the Wall Street Journal, she said –
“We’ve moved into the more moderate phase of expansion. We’re past the peak for growth, but that doesn’t mean something more sinister is going on here and that we’re poised to then drop off sharply.”
It is an opinion shared by most economists. The overall feeling is that although the period of peak growth has passed, the economy will continue to grow strongly over the coming months. Continuing fiscal support, accrued savings, and job gains are all expected to help retain growth for the rest of the year at least.
Looking further ahead, they forecast that the expansion will gradually cool to a more realistic post-pandemic level.
Reality beckons
In a survey undertaken by the Wall Street Journal, economists estimated that for the period April to June, the economy had expanded at a seasonally adjusted rate of 9.1%. Except for last year’s one-off summer rebound, this is the largest pace of increase since 1983. They also estimated that U.S. GDP surpassed its pre-covid levels in the same quarter.
However, with the stabilization of the situation and a gradual decrease in fiscal assistance, they forecast that the rate of growth will slow to 7% in the current quarter and will continue to cool, reaching 3.3% by the end of 2022.
As the growth slows, inflationary pressures should ease along with a decrease in job gains.
Amongst the economists surveyed was Michael Feroli, Chief U.S. Economist at JP Morgan Chase and Co. When asked about the forecasts, he said –
“It’s normal. You shouldn’t expect 9% growth forever. We feel very confident that we’re going to see strongly above-trend growth in the second half of the year.”
Ironically, the slowing of growth is expected to help many firms. Companies that have struggled to find workers and work through backlogs, will be helped by the slowing of the jobs market, although some supply bottlenecks are expected to persist.
This second stage of the recovery is what is likely to keep growth strong throughout the remainder of the year. Millions of people still looking for work are expected to find employment and this second wave of new income will see another surge in spending, sustaining a strong growth into the new year.
Most of the economists surveyed also said that September was likely to be a key month. Schools reopening across the nation and expanded unemployment benefits expiring will be a crucial moment in the recovery, with some economists concerned about the effect this will have.
A point not lost on Michael Feroli, who said – “I do worry a little bit about whether there will be some structural underemployment on the other side of all this.”