The rapid growth recorded by the American economy is about to hit a wall


A National Park Service worker replaces a flag at a monument in Washington, D.C., that opened today after a six-month closure due to COVID-19 security measures, in Washington on July 14, 2021.

Kevin Lemarque | Reuter

The U.S. economy is expected to see another sharp rise in the second quarter, before a slow and stable dose of reality begins to sink.

According to a FactSet survey, gross domestic product is projected to accelerate by 9.2% for the period April to June. The trade ministry will release its first estimate of GDP in the second quarter on Thursday.

In the pre-pandemic world, this would have put annual growth at its fastest level since the second quarter of 1983. However, current circumstances and too much policy response which they generated make up this only the third quarter of consecutive GDP which is well above the trend after the Great Recession.

Things will change, however.

The economy is returning to normal, Congress ’open checkbook will soon be tightened, and millions of American workers on the sidelines will return to their jobs. This means a gradual return to the average for an economy accustomed to growing closer to 2% of the much stronger levels it turned into during reopening.

“Growth has peaked, the economy will slow slightly in the second half of this year and then significantly more noticeable in the first half of 2022 as fiscal support fades,” said Mark Zandi, chief economist at Moody’s Analytics. “The contours of growth will be largely shaped by fiscal policy over the next 18 months. The tail wind is simply blowing weaker and may stop completely by this point next year.”

It has been a long way here, but the economy has approached its pre-pandemic self.

In fact, according to the current meter held by Jefferies, total production was at 98.6% of its “normal” level before Covid-19 reversed everything. The company uses a range of metrics to measure then compared to now and finds that while some areas such as employment and air travel are lagging behind, retail and housing have helped bring overall activity to a level below 2019, at 98.6%.

“When I look holistically at the dynamics of household income and balance sheet, I see a very, very positive situation, very sound fundamentals and it’s hard to be pessimistic about the outlook,” said Aneta Markowska, chief financial economist at Jefferies.

Really, The net worth of the household was $ 136.9 trillion at the end of the first quarter, an increase of 16% compared to the 2019 level, according to the Federal Reserve. At the same time, household debt repayment relative to disposable wages fell to 8.2%, a record low in 1980.

But much of that net worth was caused by an increase in financial assets such as stocks, and personal income swelled as a result. government incentive payments which slow down and will eventually stop.

Demographics are slowing growth

Gasoline prices at the Royal Dutch Shell Plc gas station in San Francisco, California, on Wednesday, July 7, 2021.

David Paul Morris Bloomberg | Getty Images

Inflation combined with declining fiscal support will also then serve as a growth limit.

“The economy is facing supply constraints, as housing investment is likely to withdraw and stock changes remain negative,” Bank of America economist Alexander Lin said. “Looking ahead, this is probably the peak, with growth that will cool in the coming quarters.”

Capital Economics forecasts data below GDP below the consensus for the second quarter, followed by a decline to 3.5% in the coming period.

“With rising prices crowding out real incomes, we doubt the pace of monthly growth will continue to be weak, laying the groundwork for a sharp slowdown in consumption and GDP growth in the third quarter,” wrote Paul Ashworth, chief North American economist at Capital Economics.

A pandemic is another wildcard.

The cases of the delta variant are a jump in a handful of states, and health officials worry that the U.S. could face a wave like the one that hit some European and Asian countries. Few economists expect a new wave of locks or similar restrictions in the U.S., but pressure from abroad could hit domestic growth.

“Export platforms like Vietnam are now locked,” Brusuelas said. “Vietnam is becoming a more important gear in the global supply chain, so we are watching this closely.

Brusuelas added that negotiations on the debt ceiling could shake things up in the US. Yellen said on Friday she would take emergency measures The US may have to take continued payment of debts could create problems as early as October.

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