US Economic Recovery Has Likely Peaked

The U.S. economy has likely reached its growth peak in the second quarter of the year, driven by the impact of strong fiscal stimulus and the reopening of the economy following the pandemic-induced recession.

U.S. gross domestic product is set to have expanded 9.8% from April to June at an annualized rate, according to a consensus forecast from economists polled by FactSet. The reading, if confirmed, would mark a sharp acceleration from the 6.4% registered in the first three months and bring the economy above its pre-pandemic output levels.

However, recent data suggests that the economy is past the point of maximum growth. Both the ISM manufacturing and services surveys for June signal that economic activity is still expanding at a fast pace but pointing downward from the record highs seen over the second quarter. Similar patterns can be seen in durable goods outlays or retail sales data, even though widespread supply shortages and consumers’ shift toward service spending could also play a role.

Real GDP growth is likely to slow noticeably in the coming quarters and into 2022, Joseph Lavorgna, chief economist for the Americas at Natixis, said. Slower growth doesn’t mean recession, so the rally in financial markets should continue notwithstanding some bumps in the road, he said.

Consensus from economists predict U.S. GDP will grow by a strong 6.8% and 5.4% annualized rate in the third and fourth quarters, respectively.

“The story for consumers’ spending in the second half of the year will be about the continued reopening, the accompanying rebound in employment, and people’s willingness to spend some of their accumulated $2.5 trillion in extra savings since the pandemic began,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, says.