Vaccinations and federal aid helped lift the U.S. economy out of its pandemic-induced hole this spring. The next test will be whether these momentum can continue as coronavirus cases rise, masks return, and government aid wears off.
The gross domestic product, the most comprehensive measure of economic output, grew 1.6 percent in the second quarter of the year, the Commerce Department said on Thursday, compared with 1.5 percent in the first three months of the year. On an annual basis, growth in the second quarter was 6.5 percent.
Growth, driven by strong consumer spending and robust corporate investment, brought production back to pre-pandemic levels, adjusted for inflation. That is a remarkable feat, exactly one year after the worst quarterly economic decline on record. After the last recession ended in 2009, it took two years for GDP to fully recover.
But the figure for the second quarter fell short of what economists had projected, and the recovery is far from over. Production would be well below if growth continued on its prepandemic path. Other economic measures remain deeply depressed, especially for certain groups: The US still has almost seven million fewer jobs than before the pandemic. The unemployment rate for black workers was 9.2 percent in June.
“The good news is that this is all h -pening much faster than it did after the financial crisis,” said Diane Swonk, chief economist at accounting firm Grant Thornton. “The bad news is that the pain was much worse.”
The growth might have been stronger if it hadn’t been for supply chain disruptions and labor issues that made it difficult for many companies to staff their shelves and stores. These problems, coupled with a surge in consumer demand, contributed to accelerating inflation in the second quarter. Consumer prices rose 1.6 percent from the first to the second quarter of the year. Adjusted for inflation, economic output rose by 3.1 percent.
A new threat is now emerging in the highly contagious Delta variant of the coronavirus, which has led to an increase in cases across much of the country. The Centers for Disease Control and Prevention this week recommended that self-vaccinated people in some parts of the country wear masks indoors, and some mayors and governors have reintroduced mask mandates.
Few economists anticipate a return to widespread business closures or stay-at-home orders. However, if the resurgent virus leads to renewed caution among consumers – reluctance to eat at restaurants, hesitation in booking a late summer vacation – it could weaken recovery at a crucial moment.
“The reason that is worrying is that this surge in activity around the reopening has driven the economy in recent months,” said Michelle Meyer, director of US economics at Bank of America. “Even a modest change in behavior could be more meaningful this time.”
And this time around, workers and businesses may have to face the pandemic without much help from the federal government. About half of the states have canceled extended unemployment benefits in recent weeks, and the programs are scheduled to expire nationwide in September. The paycheck protection program that helped thousands of small businesses weather the crisis is ending. A state eviction moratorium will end this week if the Biden government fails to act to extend it. And there is no evidence that Congress intends to pass a fourth round of direct checks to households.
Nela Richardson, chief economist at ADP, the payroll company, said the second quarter could be a high point for the recovery when federal aid was still flowing and vaccinations and the lifting of restrictions gave people the opportunity to spend.
“All winds were going in a direction that should propel the economy,” she said. “The more interesting question is, where do we go from here?”
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