Consumer Spending Rebounds Strongly Despite Inflation


1. GDP Holds Steady, Consumer Spending Rebounds

2. Consumer Spending Up Strongly, Inflation Still High

3. House Passes Controversial “Build Back Better” Plan

Economy: GDP Holds Steady, Consumer Spending Rebounds

The government reported last week that US Gross Domestic Product rose at an annual rate of 2.1% in the 3Q, up ever so slightly from its initial report of 2.0% late last month. The drop to 2.1% was a substantial reduction from the blistering 6.3% and 6.7% pace in the first two quarters of the year as the economy recovered from last year’s COVID-19 lockdowns and layoffs.

The small increase from the initial third quarter GDP estimate a month ago reflected a slightly better performance for consumer spending, which grew at a still lackluster 1.7% rate in the 3Q, compared to a 12% surge in the April-June quarter. The contribution to GDP from business inventory restocking was also revised up slightly.

Real GDP chart

The economy's weak summer performance reflected a big slowdown in consumer spending as a spike in COVID-19 cases from the delta variant caused consumers to grow more cautious, and snarled supply chains made items such as new cars hard to get and also contributed to a burst of inflation to levels not seen in three decades.

While COVID cases in recent weeks have started to rise again in many parts of the country, economists do not think the latest increase will be enough to dampen consumer spending significantly, which accounts for 70% of economic activity.

The expectation is that the economy in the current October-December quarter could grow at the strongest pace this year, with some economists forecasting GDP could surge to an 8% rate in the 4Q. Most forecasters I read, however, expect GDP to grow by more like 5% for the 4Q.