Economists downgrade US growth prospects for rest of the year

[WASHINGTON] The rapid spread of the Covid-19 Delta variant, higher inflation and persistent supply challenges are prompting economists to downgrade US growth prospects for the remainder of the year. Forecasters lowered their economic growth projections for the third quarter to 5 per cent from 6.8 per cent and trimmed their fourth-quarter estimate to 5.3 per cent from 5.6 per cent, based on median forecasts from Bloomberg's latest monthly survey.

"Consumer sentiment has been hit hard and has already shown up in lower air passenger travel, restaurant bookings and leisure activities," said James Knightley, chief international economist at ING. "With retail sales also seemingly plateaued we now expect an outright contraction in 3Q consumer spending."

Economists forecast consumer spending will grow an annualised 2.1 per cent in the third quarter, a sharp markdown from the 4.5 per cent projection in Bloomberg's August survey. While the nationwide rise in Covid-19 cases and hospitalisations has put a dent in activity, forecasters see it abating.

The median estimates for gross domestic product growth in the first and second quarters of 2022 were revised up to annualised rates of 4.1 per cent and 3.3 per cent, respectively. Household spending forecasts for those periods were also raised.

"Signs that Covid infections may be cresting should prevent the labour market recovery from going into reverse and ensure that consumer spending maintains moderate momentum into 2022," said Gregory Daco at Oxford Economics.

At the same time, economists raised estimates for the closely followed consumer price index for each quarter through the middle of 2022.

The personal consumption expenditures price index, a key inflation gauge favored by the Federal Reserve, was revised up to 4.1 per cent year-over-year from 4 per cent for the third quarter and to 4.2 per cent from 4.1 per cent in the final three months of this year.

BLOOMBERG