The U.S. economy likely expanded at its slowest clip in over a year in the third quarter, with a reopening surge in activity quickly beginning to fade.
The Bureau of Economic Analysis is set to release its first estimate of third-quarter gross domestic product (GPD) on Wednesday. Here are the main metrics economists are expecting to see from the print, based on consensus estimates compiled by Bloomberg:
GDP quarter-over-quarter, annualized: 2.6% expected, 6.7% in Q2
Personal consumption: 0.8% expected, 12.0% in Q2
Core personal consumption expenditures, quarter-over-quarter: 4.4% expected, 6.1% in Q2
The expected deceleration in economic activity is set to coincide with the resurgence in Delta variant-related coronavirus cases in the July through September quarter. Positive impacts from stimulus checks and other economic relief delivered by the government earlier this year are also set to dwindle. And supply chain challenges have capped companies’ abilities to keep up with consumer demand.
Consumption, the largest component of U.S. GDP comprising about two-thirds of overall economic activity, is expected to slow to a 0.8% rate in the third quarter, also marking the weakest pace since the second quarter of 2020.
“The pace of GDP growth is likely to have decelerated substantially in Q3, a reflection of the Delta-variant wave exacerbating labor and material shortages, transportation bottlenecks, and accelerated price gains,” Sam Bullard, Wells Fargo senior economist, wrote in a note earlier this week. “Taking a look at the major components, consumer spending is expected to drive most of the slowdown as supply shortages and rising COVID infection rates lead to decline in goods spending and a moderation in services spending.”
Heading into Thursday’s report, monthly retail sales data from the Commerce Department came in mixed for the third quarter to already reflect a marked deceleration in consumer spending. Sales dropped much more than expected in July before rebounding in August and September, albeit to monthly growth rates still well below the surges seen earlier this year.
Consumer confidence, which serves as one indicator of consumers’ propensity to spend and stoke economic activity, followed a similar trend. The Conference Board’s September consumer confidence index, which does not factor into calculations of GDP, declined in each of July, August and September, reflecting a deterioration in consumer optimism amid the Delta variant and rising prices.
“Diminished consumer confidence is likely to mirror the growth of the economy in the third quarter as consumer spirits fell and real GDP growth probably came to a near standstill,” wrote Chris Rupkey, chief economist at FWD Bonds, in an email on Tuesday.
“Consumers are still relatively cautious on the outlook for the economy after the surge of optimism they had at the start of the summer,” he added. “The bad news is consumers still are somewhat worried about their futures, but the good news is that they continue to spend their paychecks freely on goods and services as they have a tight labor market to rely on to give them new opportunities for work if they need it.”
Other components of GDP are expected to also be tepid for the third quarter. Net trade will likely serve as a drag yet again to headline GDP, owing to a yawning trade deficit. The goods trade gap widened to a record high in September as exports sank and imports rose, with businesses attempting to bring in goods to keep pace with demand.
Residential fixed investment, which tracks housing market activity, may also serve as a drag to GDP for a second straight quarter after contributing to growth earlier this year, with tight inventory levels and record surges in prices deterring would-be homebuyers.
This post will be updated with the results of Q3 GDP Thursday morning at 8:30 a.m. ET. Check back for updates.