US economic growth rose slightly in the second quarter to 6.5 per cent on an annualised basis, a weaker-than-expected increase as strong consumption was offset by lagging private investment.
The data from the US commerce department on Thursday fell short of economists’ forecasts of 8.5 per cent growth on an annualised basis, and compared with a 6.3 per cent increase during the first quarter.
The second quarter rise in GDP, which was partly fuelled by Joe Biden’s $1.9tn stimulus package, brought US output back above its pre-pandemic level for the first time since Covid-19 struck.
GDP growth rose by 1.6 per cent compared with the previous quarter, based on the measure used by other big economies.
Labour shortages, supply chain disruptions and inflation have all been flagged as factors that could weigh on economic activity, along with a resurgence of Covid-19 in some parts of the country, although consumer spending has been strong.
Personal consumption was the most robust component of the GDP data, with spending increasing at an annualised rate of 11.8 per cent, compared to 11.4 per cent in the first quarter. But private domestic investment declined by 3.5 per cent in the quarter, dragged down by figures on new property investments.
The data also highlighted rising inflation. The PCE price index increased 6.4 per cent, compared with an increase of 3.8 per cent in the first quarter, and the core PCE index, which strips out volatile food and energy costs, increased by 6.1 per cent, compared with a 2.7 per cent rise in the first quarter.
Biden administration officials have expressed concerns over the highly transmissible Delta variant and its effect on the economy. The Federal Reserve on Wednesday said “the path of the economy continues to depend on the course of the virus”.
And in recent weeks, federal and local officials have redoubled efforts to boost vaccination rates among those hesitant to get the shot.
The Centers for Disease Control and Prevention backpedalled on its mask guidance for vaccinated people this week, and a number of state and city governments, along with employers such as Google, have begun to mandate vaccinations or weekly testing for employees returning to in-person work.
“The most vulnerable part of the economy from another Covid wave is services, in particular leisure activities,” said Stephen Juneau and Anna Zhou, economists at Bank of America, in a note. They cautioned that if pandemic restrictions return and spending on services dips, a boom in spending on goods is unlikely to offset that decline as stimulus payments fade.
The yield on the 10-year US Treasury note, which hovered around 1.27 per cent earlier, was down 0.01 percentage points to 1.249 per cent.
Additional reporting by Matthew Rocco