Jul 30, 2021 - Economy

The silver lining in the "disappointing" GDP report

Date: Bureau of Economic Analysis; Chart: Axios Visuals
Date: Bureau of Economic Analysis; Chart: Axios Visuals

U.S. GDP grew at a 6.5% annualized rate during the second quarter, a pace that fell short of some economists' expectations. But a closer look at the numbers suggests the report was far from disappointing.

Why it matters: If the shortfall in GDP growth were due to a shortfall in demand, then there would be concerns the economy could be peaking.

  • However, shrinking inventories weighed heavily on the metric, suggesting lack of goods prevented higher levels of growth.

By the numbers: Real business inventories fell at a $166 billion annual rate in Q2, shaving 1.1 percentage points off of GDP growth during the quarter.

What they’re saying: “Supply chain constraints and shortages are a substantial part of the drawdown in inventories,” High Frequency Economics’ chief U.S. economist Rubeela Farooqi tells Axios.

Yes, but: “The drag from inventories means that businesses have to rebuild stock, which will be a positive for growth,” Farooqi says.

The bottom line: The word “disappointment” has been thrown around a lot lately with little context. More often than not, shortfalls have been due to lack of supply available for a very healthy customer.

  • Also, 6.5% GDP growth is a blistering pace for a $19.4 trillion economy, which by the way is bigger now than it was before the pandemic.
  • “Businesses cannot get the parts and products they need to meet this tremendous moment of demand,” Wells Fargo senior economist Sarah House tells Axios. “But what hurts GDP today will be a help in coming quarters, as a much-needed rebuilding of inventories will mitigate the inevitable slowdown in spending.”
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