Q3 GDP: Economic activity decelerated to 2.0% annualized rate amid Delta variant, supply concerns

Emily McCormick · Reporter
3 min read

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The U.S. economy 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 released its first estimate of third-quarter gross domestic product (GPD) on Wednesday. Here were the main metrics economists from the print, based on consensus estimates compiled by Bloomberg:

  • GDP quarter-over-quarter, annualized: 2.0% vs. 2.6% expected, 6.7% in Q2

  • Personal consumption: 1.6% vs. 0.9% expected, 12.0% in Q2

  • Core personal consumption expenditures, quarter-over-quarter: 4.5% vs. 4.5% expected, 6.1% in Q2

The slowdown in economic activity coincided 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 also dwindled. And supply chain challenges have capped companies' abilities to keep up with consumer demand.

"The deceleration in real GDP in the third quarter was led by a slowdown in consumer spending. A resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country," the Bureau of Economic Analysis said in its release on Thursday. "In the third quarter, government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased."

Consumption, the largest component of U.S. GDP comprising about two-thirds of overall economic activity, slowed to a 1.6% rate in the third quarter, also marking the weakest pace since the second quarter of 2020.

A forklift driver works at the port of Los Angeles, California, the United States, on Oct. 22, 2021. As the Christmas shopping season is approaching, the Biden administration is facing growing pressure to ease the supply problem. The port of Los Angeles was asked to operate 24 hours a day and 7 days a week. The port of Long Beach started nighttime and weekend shifts several weeks ago to move to full-scale operations. (Photo by Xinhua via Getty Images) · (Xinhua News Agency via Getty Images)

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.

Other components of GDP were also tepid for the third quarter. Net exports served as a drag yet again to headline GDP and subtracted 1.1 percentage points from the headline rate, 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.

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