The U.S. economy grew at the rate of 2.3 percent in the third quarter, the Commerce Department announced on Wednesday.
The turnout was a little better than what was expected. However, the chances for a robust growth rate in the future are dimmed by the rapid growth of the omicron variant, a report said.
The third and last analysis of how the Gross Domestic Product (GDP), the country’s total output of products and services, was more than the previous month’s forecast of 2.1 percent growth.
The reasons are mainly from better consumer spending and businesses restocking their inventory more than initially estimated.
The increase in the third quarter follows an explosive growth that started as the nation was coming out of the pandemic, at least economically. Growth increased to 6.3 percent in the first quarter and 6.7 percent in the second quarter. Third quarter’s slowdown was believed to be caused by the rise of the delta variant in the summer.
As the omicron variant looms, which is on top of the rising inflation and ongoing supply chain problems, there are worries that growth will not be much entering the new year.
The concerns have sent the market through a volatile course in recent days. Still, a renewed sense of optimism that the risks posed by omicron could be managed caused the Dow Jones Industrial Average to rocket 560 points Tuesday and climb another 261 points on Wednesday.
President Joe Biden held a meeting of his supply chain issues task force, both online and in-person, in Washington on Wednesday. He reported significant progress in reducing congestion at ports and other problems that caused shortages of goods and led to higher prices for consumers.
Biden declared that retail inventory levels have increased by three percent from the previous year and shelf availability for the products is 90 percent, near what it was prior to the pandemic.
Yet, economists claim it’s too early to declare that the new variant of the virus presents no threat.
“History is repeating itself with the COVID virus suddenly reappearing and dampening economic growth prospects,” said Sung Won Sohn, an economics and business professor at Loyola Marymount University in Los Angeles.
Oxford Economics has trimmed its forecast for growth in the current quarter from 7.8 percent to 7.3 percent, which would still provide a substantial improvement from the slowdown in the third quarter.
Kathy Bostjancic, the chief U.S. financial economist at Oxford, said that as per an assessment, the return of COVID-19 may slow growth next year from 4.3 percent to 4.1 percent. She also said that if Biden’s Build Back Better plan is scuttled, that could cut another 0.4 percentage points next year, dropping the rate to 3.7 percent. It could also cut a one-half point off growth in 2023, cutting it to less than two percent.
She suggested that under these scenarios, job growth could be lower by 750,000 by this time next year if economic growth slows at the rate she believes.
“Omicron has been so rampant,” Bostjancic said. “We think it is going to take a pretty big toll on economic activity.”
It’s not just the return of COVID which could set the economy back in the coming year. Inflation has risen to the highest levels in almost four decades. It has prompted the Federal Reserve to start pulling back the massive amount of assistance it’s been giving to the economy to shift its focus from encouraging job growth to combating inflation.
Economists expect GDP growth this year to be around 5.5 percent, the best showing since 1984, the report added. It would also be a significant change from last year, which saw the economy shrink by 3.4 percent.
The report released on Wednesday showed that consumer spending, which is responsible for two-thirds of economic activity in the U.S., grew at a two percent rate in the third quarter, lower than the 12 percent increase recorded during the April-June period. Nevertheless, it was up from the 1.7 percent estimated quarterly gain last month.
Still, the lack of certainty about the future worries economists.
“The omicron variant poses a downside risk in the near term, as do supply-chain disruptions and shortages that could be a constraint for households and businesses over coming months,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.