US economic growth slowed more than expected in the third quarter to the softest pace of the pandemic recovery period as global supply chain woes combined with a surge in Covid-19 cases lowered spending and investment. Gross domestic product (GDP) expanded at a 2 percent annualized rate following a 6.7 percent pace in the second quarter, the Commerce Department’s preliminary estimate showed.
The increase in private inventory investment reflected increases in wholesale trade (led by nondurable goods industries) and in retail trade (led by motor vehicles and parts dealers). The increase in PCE reflected an increase in services that was partly offset by a decrease in goods. Within services, increases were widespread with the largest contributions coming from “other” services (mainly international travel), transportation services, and health care. The decrease in goods primarily reflected a decrease in spending on motor vehicles and parts. The increase in state and local government spending was led by employee compensation (notably, education). The increase in nonresidential fixed investment reflected an increase in intellectual property products (led by software) that was partly offset by decreases in structures and equipment.
Supply challenges are expected to continue into 2022, reduced Covid-19 infections and elevated savings should support stronger household spending to close out the year. In fact, The National Retail Federation (NRF) forecasts that holiday sales during November and December will grow between 8.5 percent and 10.5 percent over 2020 to between $843 billion and $859 billion. “The risks are clearly now to longer and more persistent bottlenecks and thus to higher inflation,” Fed Chair Jerome Powell said last week. “We now see higher inflation and the bottlenecks lasting well into next year”.
The growing “freight tech” industry is working to resolve these supply chain woes and open new opportunities moving forward.