GDP Growth in Q3 2021 Stumbled, but the Marathon Continues Into Q4

COVID-19’s Delta variant along with continued disruptions in global supply chains—those for automobiles in particular—took a considerable toll on economic growth in the third quarter.

Key monthly data released in October show that economic growth decelerated from the rapid clip experienced during the early quarters of the economy’s “Grand Reopening” starting in mid-2020. The advance estimate of Q3 domestic real GDP indicated a mere 2.0% (annualized) expansion when compared to prior quarter. The high-level measure’s lukewarm increase is consistent with the slowdown that AMG observed throughout the quarter across interim components including personal income and outlays; construction spending; manufacturers’ shipments, inventories and orders; and international trade; along with vehicle sales, and a report on the employment situation for September. Higher frequency indicators, such as the New York Fed’s Weekly Economic Index, also warned of sluggish activity throughout most of August and September.

The slowdown in consumer spending, which in turn dampened overall GDP growth, reflected particularly weak motor vehicle expenditures, which alone subtracted 2.4 percentage points from GDP during the third quarter. Demand for cars has been strong, but automakers have been struggling to boost production and inventory amid computer chip shortages. A wider trade deficit—caused largely by record imports of foreign goods—further eroded growth even though the high level of imports suggests robust domestic demand; net exports subtracted 1.14 percentage points from the GDP figure.

Importantly, recent data indicate that the adverse effects of the Delta variant and supply-chain disruptions have likely peaked, and fourth-quarter real GDP growth should experience a material rebound as the world moves further past the disruptive pandemic.