Supply chain and Labor shortages drag down the economy

The Bureau of Economic Analysis on Thursday released its revised estimate of second-quarter economic growth. You might recall that the first estimate had the economy expanding at an annualized, real rate of 6.5 percent, missing analyst forecasts for growth of 8.4 percent. It turned out that supply chain and labor shortages were a bigger drag than economists expected, slowing what was supposed to be a blockbuster quarter down to just above the 6.1 percent growth of the first quarter and also showing that the boost to demand from the stimulus checks had faded faster than expected.

A month ago, a lot of the talk was about perspective revisions to the preliminary estimate. After all, the pandemic had made data collection difficult, and the unevenness of the recovery had made a lot of the usual seasonal adjustments and methods of estimating growth unreliable. Just look at those ADP private payroll reports!

But that talk had faded as more evidence poured in that although inflation was running above expectations, GDP was not. So going into today, the consensus forecast was for 6.6 percent growth—which is exactly what the BEA reported. Unfortunately, the BEA figure also included an upgrade to the pace of inflation as measured by the Personal Consumption Price Index to 5.8 percent, also a tenth of a percentage point higher. So the story of the second quarter remains largely the same: disappointing growth and alarming inflation.

The Kansas City Fed’s report on manufacturing suggests that this will also be the narrative for the current quarter. Growth ticked down a bit in August, while the measure of prices received hit an all-time high and prices paid for raw materials rose back toward the record hit in May. The manufacturing sector is still growing, of course, and growing quickly. It’s just starting to show signs of not growing as quickly.

One worry was that the Federal Reserve would see the slower than expected growth as a sign that it should keep monetary policy ultra-accommodative even though inflation had jumped ahead of what the central bank anticipated. But appearances by three different Fed officials on CNBC on Thursday seem to put that worry to rest. All three called for the Fed to begin to reduce its $120 billion of bond purchases sooner rather than later and appeared cognizant of the damage inflation can do to the economy, especially for those on fixed-incomes or with low incomes.

Alex Marlow & John Carney
Breitbart News Network

%d bloggers like this: