© Reuters. FILE PHOTO: Guests enjoy outdoor dining in the Manhattan borough of New York City, U.S., May 23, 2021. REUTERS/Caitlin Ochs
By Lucia Mutikani
WASHINGTON (Reuters) – The U.S. economy grew solidly in the second quarter, but the pace was below expectations as robust consumer spending and business investment on equipment were tempered by a sharp inventory drawdown amid supply chain constraints.
Gross domestic product increased at a 6.5% annualized rate last quarter, the Commerce Department said on Thursday in its advance estimate of second-quarter GDP. The economy grew at a 6.3% rate in the first quarter, revised down from the previously reported 6.4% pace.
Economists polled by Reuters had forecast GDP rising at an 8.5% rate last quarter. With the second-quarter estimate, the government published revisions to GDP data, which showed the economy contracting 3.4% in 2020, instead of 3.5% as previously estimated. That was still the biggest drop in GDP since 1946.
The revisions to growth in other years and quarters were minor. From 2015 to 2020, GDP increased at an average annual rate of 1.1%, unrevised from previously published estimates.
The National Bureau of Economic Research, the arbiter of U.S. recessions, declared last week that the pandemic downturn, which started in February 2020, ended in April 2020.
Even with the second quarter marking the peak in growth this cycle, the economic expansion is expected to remain solid for the remainder of this year. A resurgence in COVID-19 infections, driven by the Delta variant of the coronavirus, however, poses a risk to the outlook. Higher inflation, if sustained, as well as ongoing supply chain disruptions could also slow the economy.
The Federal Reserve on Wednesday kept its overnight benchmark interest rate near zero and left its bond-buying program unchanged. Fed Chair Jerome Powell told reporters that the pandemic’s economic effects continued to diminish, but risks to the outlook remain.
FISCAL STIMULUS BOOST
Economists expect growth of around 7% this year, which would be the strongest performance since 1984. The International Monetary Fund on Tuesday boosted its growth forecasts for the United States to 7.0% in 2021 and 4.9% in 2022, up 0.6 and 1.4 percentage points respectively, from the forecasts in April.
President Joe Biden’s administration provided $1.9 trillion in pandemic relief in March, sending one-time $1,400 checks to qualified households and extending a $300 unemployment subsidy through early September. That brought the amount of government aid to nearly $6 trillion since the pandemic started in the United States in March 2020.
Nearly half of the population has been vaccinated against COVID-19, allowing Americans to travel, frequent restaurants and attend sporting events among services-related activities that were curbed early in the pandemic.
Consumer spending, which…
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