The US economic expansion slowed dramatically in the third quarter to an annual rate of just two percent as consumer spending was choked by resurgent Covid-19 infections, the government said Thursday.
The spread of the Delta variant of the virus over the summer combined with renewed restrictions and global supply snags including shortages of workers and computer chips took a toll on the economy, cutting growth from the 6.7 percent pace in the prior quarter.
The data was a setback for President Joe Biden and came shortly before he unveiled a $1.75 trillion social spending package that will anchor his "Build Back Better" agenda and serve as the signal achievement of his presidency -- if it wins congressional approval.
Biden called the framework "historic," saying it would help create jobs and "put us on a path not only to compete but to win the economic competition for the 21st century against China and every other major country in the world."
The latest impact of the pandemic on the world's largest economy was most notable in the more than 26 percent collapse in purchases of big-ticket manufactured goods in the latest three months, the Commerce Department reported.
That drop was partly offset by the 7.9 percent increase in spending on services like travel and hotels, though that was slower than the gain in the prior quarter, according to the data.
Despite the worse-than-expected result in the latest quarter, economists are confident growth will accelerate at the end of 2021.
"Growth was crushed by consumption slowing" as government-funded pandemic stimulus payments ended, said Ian Shepherdson of Pantheon Macroeconomics.
But he predicted the fourth quarter "will be very different; spending on services is already rebounding as Delta subsides."
- Inflation still high -
Kevin Brady, the top Republican lawmaker on the tax-writing House Ways and Means Committee, said the data shows "economic growth has already peaked for President Biden's presidency."
He warned that the new spending plan "will drive prices up higher and longer."
Rising prices -- including oil pushing above $80 a barrel for the first time in years -- have become a growing source of concern, raising fears inflation could spiral out of control and force the Federal Reserve and other central banks to hike interest rates and slow growth.
There was some good news as inflation measured by the personal consumption expenditures (PCE) price index retreated in the July-September period, but remained at a still-high 5.3 percent compared to 6.5 percent in the second quarter.