July 23, 2021 | 13:35
U.S. Growth: Going for Silver or Bronze?
It’s no coincidence that as we jacked up our inflation forecast, we have also started to take a nail clipper to our U.S. growth call. This week we cut a full percentage point from our Q2 GDP tally to 8.5% annualized (we’ll get the official result on Thursday) and our Q3 estimate to 7.5%. A soggy Chicago Fed national activity index confirmed a greater loss of momentum than previously thought. The changes trim the 2021 annual rate call to 6.5%. While this would still mark the best year since 1984, it’s clear that the risks for the U.S. and global economies are now pointing downward due to the escalating Delta variant and persistent supply-chain bottlenecks. Chip shortages forced Ford to reduce output at more than six U.S. plants in July, while a shortage of truck and train drivers is slowing the distribution of materials and parts that are crucial to keeping the nation’s factories running smoothly.
We’ll have a close eye on several indicators to judge the downside growth risks:
A gradual slowing of growth from earlier high rates wouldn’t be so bad if it buys the economy time to iron out prevailing supply-chain glitches and dampens price pressures. This week, the NBER finally declared that the shortest recession (just two months) since at least 1855 ended in April 2020. Resolving some of the imbalances that have emerged in the year-long recovery could help the economy break the previous record for expansion: 10.7 years, which came to a screeching halt with the pandemic.