Thursday’s report from the Commerce Department estimated that the nation’s gross domestic product — its total output of goods and services — accelerated slightly in the April-June quarter from the 6.5% it had reported last month. The economy’s expansion last quarter followed a solid 6.3% annual growth rate in the January-March quarter.
In recent weeks, though, many economists have been downgrading their estimates of GDP growth for this quarter, and for 2021 as a whole, as the now-dominant delta variant has sent confirmed COVID-19 cases rising throughout the country.
New reported cases are now topping 150,000 a day, the highest level since late January. As a consequence, real-time tracking of consumer activities, notably for airline travel and restaurant dining, has weakened in recent weeks.
Goldman Sachs has cut its forecast for annual growth in the current July-September quarter from 9% to 5.5%, citing the effects of the delta variant. Likewise, Wells Fargo economists have downgraded their third quarter GDP forecast from an 8.8% annual rate to 6.8%, also because of the surge in COVID cases.
Some forecasters have also reduced their outlook for the full year, thought by smaller amounts, in anticipation that the economy could re-accelerate in the final three months of 2021 if COVID cases ease as vaccines are increasingly administered.
Mark Zandi, chief economist at Moody’s Analytics, said he had downgraded its forecast for annual GDP growth this quarter from 8.4% to 6.5%. But he predicted that GDP will expand at a strong 6.4% annual rate in the final three months of the year.
That would leave growth for the full year at a brisk 6.1%, which would be the fastest calendar-year expansion since a 7.2% gain in 1984. Last year, the economy shrank 3.4% as the pandemic-triggered recession wiped out tens of millions of jobs.
At the same time, Zandi cautioned that COVID remains in his mind the most serious economic risk.
“The economy is linked at the hip to the pandemic,” he said. “So long as the pandemic is raging, that will drive a lot of what happens in the economy.”
The uncertainty surrounding COVID is complicating the work of the Federal Reserve. The Fed is caught between the risks posed by COVID, which would normally call for continued economic support from the central bank, and rising inflation, which creates pressure on the Fed to consider dialing back its ultra-low-interest rate policies.
Financial markets will be listening closely when Fed Chair Jerome Powell gives a high-profile speech Friday morning as part of an annual conference of central bankers. The conference, sponsored by the Federal Reserve Bank of Kansas City and normally held in Jackson Hole, Wyoming, will instead be a virtual-only event for a second straight year because of rising COVID cases in Wyoming.