Real GDP grew at an annual rate of 6.6% (second estimate) in the second quarter of 2021, after growing 6.3% in the first quarter. The US economy continues to grow and repair the damage done from a brief, but brutal, COVID-induced recession. Most recently some headwinds to that recovery have developed, or been exacerbated, as the Delta variant has caused another wave of infection in several parts of the country. The base theme of growth is intact, but investors and decision-makers need to be cognizant of current indications that a return to our full economic potential is facing some meaningful obstacles, both in the near term and beyond. Among these are: a slow return to full employment, logistical challenges, supply shortages, and inflation.
New cases of COVID in the US recently averaged just over 160,000 per day, after declining to a low of about 12,000 per day in June. The peak last January was just over 200,000 per day. In some states, the peak of the current wave actually exceeded the January high. The latest wave, driven by the Delta variant, has shown some very recent signs of having already peaked. A potential obstacle to sustained economic growth is the possible proliferation of other COVID variants and whether currently available vaccines will be effective against those variants. Such developments are as difficult to predict as the original occurrence of the pandemic itself.
The US economy had been accelerating toward sustainable growth when the Delta variant hit. While still displaying positive growth, the most recent data indicate a moderating pace. Overall consumer spending increased a tepid 0.3% in July with spending on goods, both durable and non-durable, posting outright declines. Spending on goods had been a bright spot during the worst of the COVID lockdown, with consumers spending on electronics, furniture, appliances, home improvement and sports equipment. As is frequently the case, the surge in spending on durables brought forward some demand, and now spending on such items is flat to down. Consumer spending remained positive overall, however, thanks to increased spending on services. This is an important part of the growth picture, because spending on services is by far the larger part of the overall economy. It must also be pointed out, however, that services are more directly impacted by surges in COVID since the delivery of so many services require personal contact. One theme of this recovery is the ongoing rotation from spending on goods back into spending on services. While that theme is intact, for the time being it is being restrained by the Delta variant. Many analysts are downgrading their estimates for Q3 spending, yet the vast majority of forecasts remain in positive territory.
Over the next several months, spending will be impacted by the phasing out of the fiscal stimulus put in place during the COVID recession. While some level of spending will be supported by the implementation of the new Child Tax Credit, this benefit pales in comparison to the supplemental unemployment payments that have now ended. At their height these may have supported as much as three quarters of one percent of GDP.
Supply constraints continue to curb the rate of growth in this recovery for both goods and services. In mid-August there were 37 cargo ships at anchor off the port of Long Beach waiting to be unloaded. While down slightly from the high of 40 in February of this year, this backlog is emblematic of the logistical problems that continue to limit our economic potential. Shortages of chips continue to constrain production of autos, appliances and electronics. Shipping backlogs have the additional effect of contributing to the scarcity and cost of shipping containers and their movement around the globe.
One of the important takeaways from the COVID-induced recession is that it is much easier to shut down something as large and as interconnected as the global economy than it is to get it back up and operating at its full potential for growth and efficiency. The best evidence for this is found in our global logistical challenges.