Oct 29, 2021 - Economy

Don't overthink the third-quarter GDP slowdown

Data: FRED; Chart: Axios Visuals

Third-quarter GDP growth was muted — more so than many expected. But the market shrugged off the slowdown, which took annualized quarterly growth to 2% from 6.7% in the Q2 reopening frenzy.

Why it matters: We have, for the most part, economically moved past Delta, and the signals for a fourth-quarter rebound are aplenty.

  • “Q4 will be very different; spending on services is already rebounding as Delta subsides, while the base effect from the absence of stimulus payments will be zero,” according to a Pantheon Macroeconomics research note.

The big picture: The economy is still expanding at a historically high rate. That’s despite the Delta variant and the supply problems wracking certain industries — like motor vehicles, a sector that subtracted 2.39 percentage points from GDP (thanks, chip shortage).

  • And nominal GDP grew at a rate of 7.8%. While that figure includes inflationary growth, it’s still a signal of consumer demand and a willingness to spend.

State of play: “Because of how disruptive the coronavirus was, and then how strong the unleashing of pent-up demand was, we went from this bust-to-boom environment,” Brian Levitt, chief strategist at Invesco, tells Axios.

  • “Over the next year or so we're going to be navigating back toward a more normalized environment,” he adds.

The bottom line: Levitt says not to overthink it. “Focusing too much on each individual data point right now is a little bit unnecessary because the numbers keep getting skewed.”

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