Economists Downgrade U.S. Growth Prospects for Remainder of Year

(Bloomberg) -- The rapid spread of the Covid-19 delta variant, higher inflation and persistent supply challenges are prompting economists to downgrade U.S. growth prospects for the remainder of the year. 

Forecasters lowered their economic growth projections for the third quarter to 5% from 6.8% and trimmed their fourth-quarter estimate to 5.3% from 5.6%, 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 annualized 2.1% in the third quarter, a sharp markdown from the 4.5% projection in Bloomberg’s August survey. While the nationwide rise in Covid-19 cases and hospitalizations 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 annualized rates of 4.1% and 3.3%, respectively. Household spending forecasts for those periods were also raised.

“Signs that Covid infections may be cresting should prevent the labor 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% year-over-year from 4% for the third quarter and to 4.2% from 4.1% in the final three months of this year.

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