Are we in for a sharp slowdown in the US economy?

The third quarter was supposed to bring a radical halt to gross domestic product growth in the world’s biggest economy – derived from the model of the Fed’s Atlanta-based forecasting office

Are we in for a sharp slowdown in the US economy?

Although the third quarter A. D. 2021 ended almost a week ago, still the latest US GDP data we have are the second quarter statistics. According to the final data the world’s biggest economy grew at an annual rate of 6.7% in the second quarter. This was the third best result of the 21st century, second only to the result of Q2 2003 and an all-time high of 33.1% in Q3 2020.

However, the latest data suggests that this is the end of this post-covie boom and that we are starting to return to slightly more “normal” macroeconomic readings. And this technically means that we have entered a period of slowing economic growth in the USA. Moreover, at least from a statistical point of view, this slowdown is quite sharp.

According to the Atlanta Fed’s prognostic model, annual GDP growth in the third quarter was only 1.3%. This is a result based on data until 5 October. Economists from the US state of Georgia estimate GDP development on the basis of current official macroeconomic data. Thus, it is a so called “nowcasting” and not a purely econometric model based on previously made assumptions.

The devil is not as frightening as it is painted

It does not necessarily mean that the US economy is suddenly on the verge of recession. That would be a conclusion which is greatly exaggerated and rather devoid of ground in reality. Firstly, because the Fed model does not always accurately predict the actual data released later by the government’s Bureau of Economic Analysis. Secondly, the high base effect combined with the specific way Americans report GDP adds its three cents.

The US and global economies have experienced a series of shocks that have disrupted the normal business cycle. First, government lockdowns hit the recession-prone economy in the spring of 2020, paralysing both demand and supply. Fiscal and monetary stimulus then led to a lightning-fast recovery in demand, which was, however, still accompanied by significant supply constraints. Hence the current raging inflation and shortages of raw materials, semi-finished products and labour.

The situation is very dynamic and it is still unknown whether the central planners of the Fed and Treasury will be able to move smoothly from the boom phase to a self-recovery. Or whether the artificially created consumer boom will shatter into inflationary splinters as it collides with severe constraints on the production side. Let’s not forget that prosperity and prosperity cannot be “over-printed” – after all, someone has to deliver all these necessary goods.



comments powered by HyperComments