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U.S. Economy Grew 1.6% in Second Quarter – The New York Times

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Gross domestic product grew 1.6 percent in the second quarter, the latest gauge of a rebound that could be challenged by the Delta variant of the coronavirus.




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$20

trilion

4th qtr. 2019 level

+1.6%

from

previous

quarter

15

Gross domestic product

Adjusted for inflation and

seasonality, at annual rates

10

5

’15

’16

’17

’18

’19

’20

’21

$20

trilion

4th qtr. 2019 level

+1.6%

from

previous

quarter

15

Gross domestic product

Adjusted for inflation and

seasonality, at annual rates

10

5

0

’15

’16

’17

’18

’19

’20

’21


Source: Bureau of Economic Analysis

By Karl Russell

Vaccinations and federal aid helped lift the U.S. economy out of its pandemic-induced hole in the spring. The next test will be whether that momentum can continue as coronavirus cases rise, masks return and government help wanes.

Gross domestic product, the broadest measure of economic output, grew 1.6 percent in the second quarter of the year, the Commerce Department said Thursday, up from 1.5 percent in the first three months of the year. On an annualized basis, second-quarter growth was 6.5 percent.

Fueled by strong consumer spending and robust business investment, the growth brought output back to its prepandemic level, adjusted for inflation. That is a remarkable achievement, exactly a year after the economy’s worst quarterly contraction on record. After the last recession ended in 2009, the G.D.P. took two years to rebound fully.

G.D.P. rebounded much faster than it did in the Great Recession




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+

15

%

2001

Cumulative percentage change

in G.D.P. from the start of the

last five recessions

1980

1990

+

10

+

5

2007

0

2020

5

10

5

quarters since

recessions began

10

15

20

+

15

%

2001

1980

Cumulative percent change in G.D.P.

from the start of the last five recessions

1990

+

10

+

5

2007

0

2020

5

10

5

quarters since

recessions began

10

15

20


Note: Gross domestic product is adjusted for inflation and seasonality. Recessions are labeled by the years they started.

Source: Bureau of Economic Analysis

By Karl Russell

But the recovery is far from complete. Output is significantly below where it would be had growth continued on its prepandemic path, and other economic measures remain deeply depressed, particularly for certain groups. The United States has nearly seven million fewer jobs than before the pandemic. The unemployment rate for Black workers in June was 9.2 percent.

“The good news is, this is all occurring much more rapidly than after the financial crisis,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “The bad news is, the pain was much worse.”

For Sarah Ladley, the economy’s spring reawakening was a glimmer of hope after a brutal year for her business.

Ms. Ladley, 33, started selling banana-based frozen treats out of her Denver food truck nearly a decade ago, just after she graduated from college. The pandemic nearly wiped her out: She made it through last year with the help of a loan through the Paycheck Protection Program, but the business lost money. With pandemic restrictions still in place early this year, she began looking for another job to pay the bills.

Instead, the phone began ringing with people looking to hold events.

“All of a sudden in May, it was like the floodgates opened,” she said.

Now Ms. Ladley has a different set of problems. Business has rebounded, though not all the way, and she is having trouble fulfilling demand. She had to change the cups she uses after a vendor ran out, stores will sometimes be out of the fruit she needs and she has struggled to hire workers amid competition from businesses that can offer higher pay and year-round employment. She says she has had to turn away business to avoid burning out her limited staff.

“Things definitely aren’t normal, but even if they were normal, I wouldn’t be able to handle it,” she said.

Indeed, the economy’s second-quarter growth might have been stronger had it not been for supply-chain disruptions and labor challenges that made it difficult for many businesses to keep their shelves stocked and their stores staffed. Inventories fell and imports rose as companies turned to overseas suppliers and their own warehouses to meet demand where domestic producers could not. And despite a red-hot housing market, residential construction fell 2.5 percent in the second quarter as builders struggled to get materials and workers.

Those issues, combined with a rush of consumer demand, contributed to faster inflation in the second quarter. Consumer prices rose 1.6 percent from the first quarter of the year to the second. Without adjusting for inflation, economic output rose 3.1 percent.

Now a new threat is emerging in the highly contagious Delta variant of the coronavirus, which has led to a surge in cases in much of the country. The Centers for Disease Control and Prevention recommended this week that even vaccinated people should wear masks indoors in some parts of the country, and some mayors and governors have reimposed mask mandates.

Few economists expect a return to widespread business shutdowns or stay-at-home orders. But if the resurgent virus leads to renewed caution among consumers — a reluctance to dine at restaurants, hesitation about booking a late-summer getaway — that could weaken the recovery at a crucial moment.

“The reason that is concerning is that this burst of activity around reopening has been driving the economy the past couple months,” said Michelle Meyer, head of U.S. economics at Bank of America. “Even a modest change in behavior could show up more meaningfully this time around.”

Brandon Lindley is watching the Delta variant news with mounting concern. He and his husband, Raphael Polito, own retail stores in California and Arizona selling designer flip-flops and other tourism-oriented products. After a disastrous 2020, business has picked up in California this year, but they are grappling with supply-chain and labor issues, and their store in Scottsdale, Ariz., is still struggling. Business has softened since July 4, which Mr. Lindley suspects could reflect concern over the new variant.

“Everyone’s a little on edge,” he said. “They don’t know what’s coming down the pipeline.”

There is little evidence so far that either the Delta variant or inflation are making a dent in consumer demand overall. Consumer spending rose 2.8 percent in the second quarter, and more recent data from private-sector sources has yet to show a significant slowdown.

Spending on services was particularly robust in the second quarter as widespread vaccinations and falling coronavirus cases led Americans to return to restaurants, nail salons and other in-person activities. But goods spending remained strong as well, reflecting the strong financial position of many households after successive rounds of government aid, said Aneta Markowska, chief financial economist for Jefferies, an investment bank.

Personal income after taxes fell from the first quarter, when stimulus payments provided a temporary lift, but is still 6.4 percent above its prepandemic level after adjusting for inflation. And Americans are collectively sitting on trillions more in savings than they had before the pandemic.

“The story of the last two decades was that every time you got a price increase somewhere, it caused immediate demand destruction because household incomes and balance sheets were so constrained,” Ms. Markowska said. “Today that’s not the case. Household finances are in the best shape they’ve been in decades.”

Still, the recovery has been highly unequal. Data from Affinity Solutions, which tracks the credit and debit card transactions of 90 million U.S. consumers, shows that recent increases in spending have been driven by high-income households. Employment among people with a college degree — many of whom could work from home — fell less in the pandemic and has already returned to its previous level, while employment among those with a high school diploma or less remains millions of jobs below that benchmark.

“The people who were working and did not have an interruption in their pay were able to save more money and now have this pent-up demand,” said Kristen Broady, a Dillard University economist and a fellow at the Brookings Institution. For low-income households who fell behind on rent or bills during the pandemic, she said, “their situation is even worse than it was before.”

And this time, workers and businesses may have to face the pandemic without much help from the federal government. Roughly half the states have cut off enhanced unemployment benefits in recent weeks, and the programs are set to end nationally in September. The Paycheck Protection Program, which helped thousands of small businesses weather the crisis, is winding down. A federal eviction moratorium is scheduled to end this week. And there is no sign that Congress intends to pass a fourth round of direct checks to households.

Nela Richardson, chief economist for ADP, the payroll processing firm, said the second quarter might stand as a high-water mark for the recovery, when federal aid was still flowing and when vaccinations and the lifting of restrictions gave people an opportunity to spend.

“All the winds were going in one direction, which was to push the economy forward,” she said. “The more interesting question is: Where do we go from here?”

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US economy continues to strengthen despite Delta, says Fed – BBC News

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Federal Reserve chair Jerome Powell

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The US economy continues to strengthen, albeit at a slower rate because of the Delta variant of Covid, the US Federal Reserve has said.

The central bank said the jobs market was improving and that currently high rates of inflation remained transitory.

It said it may start reducing its emergency support for the economy “soon”, but did not say when.

Half of its policymakers also projected interest rates will need to rise in 2022 from current rock-bottom levels.

The US economy has rebounded strongly this year from its pandemic lows, but there are fears Delta will derail the recovery.

The country added fewer jobs than expected in August as rising infections hit spending on travel, tourism and hospitality.

Inflation, which measures the increase in the cost of living over time, is running at 5.3% – the highest in nearly 13 years. It comes amid surging consumer demand, rising energy prices, and supply chain-related shortages.

Despite this, the Federal Open Market Committee (FOMC), which sets US monetary policy, said overall indicators of economic activity “have continued to strengthen”.

“The sectors most adversely affected by the pandemic have improved in recent months, but the rise in Covid-19 cases has slowed their recovery,” it said.

“Inflation is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to US households and businesses.”

‘Broadly as expected’

The FOMC said the path of the economy still depended “on the course of the virus”. And it expects to keep monetary policy loose until more progress is made on stabilising unemployment – which stands at 5.2% – and consumer prices.

However, it said if progress continues “broadly as expected”, it may soon pare back its $120bn-a-month bond-buying programme which has helped keep borrowing rates low.

Worker at Chipotle

Getty Images

Analysts said the bank was taking a cautious approach, noting no formal date was set for pulling back support.

“While the Federal Reserve has laid the groundwork for an eventual taper [of asset purchases] later this year, the Fed erred on the side of caution given that the macroeconomic landscape has deteriorated somewhat over the last few months,” said Candice Bangsund, a portfolio manager at Fiera Capital.

“Preconditions for a formal taper announcement will largely depend on economic conditions over the coming months, with an emphasis on data dependence.”

Gurpreet Gill, a macro strategist at Goldman Sachs, said ongoing supply chain disruption, the spread of Delta and higher inflation still weighed on the minds of Fed committee members.

“Given uncertainty around the health of labour market and inflationary pressures, we would not be surprised if the ‘dot plot’ changes again in the coming months as the pace of the recovery and underlying inflation dynamics become clearer.”

The Fed has two goals. It aims to keep US inflation at about 2% and to achieve maximum employment, whereby everyone who needs a job has one.

During the pandemic it has supported the economy by slashing interest rates to historic lows and pumping billions of dollars into the financial system by buying government and corporate bonds.

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Low Vaccination Rates are Hurting Southeast Asia's Economy: ADB – The Diplomat

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Economic growth in Southeast Asia is beginning to fall behind other parts of the region due to the region’s continued struggles with outbreaks of the disease and the sluggish rollout of COVID-19 vaccines, the Asian Development Bank said today.

In an update to its Asian Development Outlook report, the Manila-based multilateral bank stated that growth in the 46 nations of what it terms “developing Asia” is projected to reach 7.1 percent this year, down slightly from its 7.3 percent forecast in April. Despite this small downgrade, this year’s growth estimate is a marked improvement over the 0.1 percent contraction that the region saw last year.

Within the region, however, “growth paths are diverging, with economies that have successfully contained the pandemic or are making good progress on vaccination programs forging ahead,” the report stated.

Among the problem regions is Southeast Asia, where the ADB has cut its growth projections due to the region’s struggle to contain outbreaks of COVID-19, continued lockdowns and restrictions, and slow vaccine rollouts.

Southeast Asia’s regional growth projections for 2021 and 2022 have been lowered to 3.1 percent and 5.0 percent, respectively, from forecasts of 4.4 percent and 5.1 percent in April. The region has also seen the largest gap – 8.6 percent – between economic forecasts for 2021 and pre-pandemic projections.

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“Southeast Asia will recover at a much slower pace than earlier projected,” the report stated, resulting in weaker than expected growth rates in nine out of the subregion’s 11 economies. It added that the region’s recovery “continues to be curtailed by recurring spikes of COVID-19 cases, resulting in the reimposition of stringent containment measures in some economies, including the Philippines.”

The downgrade is more significant in the case of certain major economies in the region, including Thailand (0.8 percent down from 3 percent in April), Indonesia (3.5 percent down from 5 percent), and Malaysia (4.7 percent down from 6 percent).

Vietnam, which had the distinction of being the only Southeast Asian nation to register positive growth in 2020, has seen its outlook for 2021 slashed from 6.7 percent in April to 3.8 percent now.

Myanmar, in the throes of a severe political crisis, will see its GDP contract by an astounding 18.4 percent this year, down from what now seems like an optimistic projection of a 9 percent contraction in April.

The one Southeast Asian nation to see an upgrade in its economic outlook was Singapore, where high vaccination coverage – the country has fully vaccinated more than three-quarters of its population – will “continue allowing the economy to benefit from the rise in global demand.”

While much of Southeast Asia managed to avoid the worst of the pandemic in 2020, the Delta variant of the virus has scythed its way through many countries in the region in recent months. This has exposed governments’ complacency in sourcing vaccines, with just three of the region’s 11 nations – Singapore, Cambodia, and Malaysia – having fully vaccinated a greater proportion of their populations than the United States (51.8 percent of the population) and the European Union (58 percent). Six have fully vaccinated less than a third.

According to the ADB report, “the uneven progress of vaccinations is contributing to the divergence of growth paths in developing Asia,” as economies like China, Singapore, and Taiwan that have vaccinated larger proportions of their populations experience a quicker recovery from the pandemic slump. In its report, the ADB raised its forecast for “developing” East Asia, a region that includes China and South Korea, by 0.2 percentage points to 7.6 percent.

The development suggests that the impacts of Southeast Asia’s sluggish reaction to the latest outbreaks of COVID-19, including both the avoidable delays in beginning vaccine distribution and the unavoidable challenges of gaining access to adequate supplies, will continue to have long-term economic effects.

Even then, the region will remain vulnerable to a host of challenges, “including the emergence of new variants, waning vaccine effectiveness, geopolitical tensions, and the resulting disruptions to global supply chains.

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ECB Says Ignoring Climate Change May Decimate Europe's Economy – Bloomberg

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A failure to introduce policies to mitigate climate change could significantly lower Europe’s economic output by the end of the century, according to the European Central Bank.

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