GDP: 6.0% GDP Growth Likely This Year

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GDP will likely grow by 6.0% or more this year. Growth in the first two quarters was 6.3% and 6.6%, respectively, because of fiscal stimulus passed by Congress. The stimulus checks boosted personal disposable income by 10% at a yearly rate in the first half of the year, which led to an 11.6% gain in consumer spending. The quarterly savings rate dropped to 11% in the second quarter, from 21% in the first, but is still far above the normal level of 7.5%, indicating that more spending could be on tap later in the year.

Yet, growth would be even stronger this year, if not for shortages. A shortage of computer chips has hobbled motor vehicle production. High costs of lumber have limited housing construction, though this appears to be easing. Shipping delays and constraints are causing headaches for all manner of businesses. They may even limit the number of toys available for holiday purchases. At the very least, higher shipping costs will push prices higher on a range of consumer items. The current surge in COVID-19 infections may slightly dampen consumer enthusiasm for eating out and traveling, and will likely delay business plans to reopen offices, creating more problems for the commercial real estate sector.

Expect 5.5% GDP growth next year. Despite all the logistical challenges, underlying consumer demand is strong and should support the economy well into next year, once the shortages have been addressed. Retailers and manufacturers will have to rebuild inventories, which are still at very low levels. That will keep businesses busy. Plus, Congress is likely to pass some sort of infrastructure bill, with most of its additional spending coming in 2022 and 2023.  

Source: Department of Commerce: GDP Data