A Disappointing Result for the US Economy

Summary

It was expected that the United States economy would experience a slowdown in the third quarter of this year, as supply chain disruptions, labor shortages and a resurgent Covid-19 pandemic all combined to hold down growth in the world’s largest economy. Nevertheless, the scale of the slowdown proved to be greater than had been expected, as economic growth slowed to 2.0% on an annualized basis (4.9% on a year-on-year basis) during the third quarter. This, coupled with headwinds around the world, raised concerns that the recovery of the global economy from the initial impact of the Covid-19 pandemic was already losing steam.

Key Factors

Certainly, the relatively disappointing result for the United States economy in the third quarter of 2021 is a cause for concern. This is due to the fact that the causes of this slowdown are expected to remain in place for many months to come. For example, the supply chain disruptions that have worsened in the United States this year are expected to remain in place well into 2022. Likewise, the labor shortages that have slowed growth in many sectors of the US economy look increasingly like a long-term trend, and not a short-term aberration. Fortunately, the falling number of Covid-19 cases in the US suggest that disruptions caused by the pandemic may ease, although there are fears of another resurgence of Covid-19 in the winter, not to mention the threat of a particularly severe flu season this winter.

Implications

With major economies such as the United States, China and Germany already recording disappointing economic results for the third quarter, there are many indications out there that suggest that the global economy is losing momentum following its strong recovery from the initial impact of the Covid-19 pandemic. While there are hopes for a rebound in the fourth quarter of this year, the fact that many of the factors that contributed to this slowdown in the third quarter will remain in place for many months to come is a worrying sign. Should this slowdown in the US and elsewhere continue in the coming months, there is a possibility that growth rates for the global economy in the coming years could be well below current forecasts. Given the precarious nature of the global economic recovery and the fact that public and private debt levels have risen dramatically during the pandemic, this is a very dangerous situation.