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Economic growth probably slowed sharply in the third quarter.  Here’s why: NPR


A sign asking customers to wear masks is seen at the entrance to a restaurant in New York City on August 3. The spread of the delta variant is expected to have resulted in a marked slowdown in economic growth during the July to September quarter.

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Economic growth probably slowed sharply in the third quarter.  Here’s why: NPR

A sign asking customers to wear masks is seen at the entrance to a restaurant in New York City on August 3. The spread of the delta variant is expected to have resulted in a marked slowdown in economic growth during the July to September quarter.

Kena Betancur / AFP via Getty Images

On July 4, the US economy appeared poised to soar.

“We are seeing record job creation and economic growth,” President Biden said as he encouraged Americans to celebrate their new independence in the face of the coronavirus pandemic.

By Labor Day, however, the economy looked more like a dud, its midsummer spark smothered by a wave of delta-variant infections and lingering supply chain problems.

Third-quarter economic growth, as reported by the Commerce Department on Thursday, is expected to be less than half of what it was in the spring.

But there is room for hope: The health outlook is improving, and forecasters believe it could set the economy up for stronger growth in the last three months of the year.

“We’ve lost a step here, but I think we’re going to take a lot of steps back pretty quickly,” says Mark Zandi, chief economist at Moody’s Analytics. “It highlights how closely the economy is linked to the pandemic. It is still driving the economic train.”

A quarter of two halves

The pandemic has had an unprecedented impact on the economy, and few times have illustrated its ups and downs as dramatically as the slowdown in late summer and early fall.

Before July, the economic train was moving at a steady pace as the country’s gross domestic product grew at an annual rate of 6.7% during the period from April to June.

“It looked like the recovery could only get stronger,” recalls Ben Herzon, economist at forecasting firm IHS Markit. “The number of coronavirus cases was low and declining. People were planning to return to work.”

Economic growth probably slowed sharply in the third quarter.  Here’s why: NPR

President Biden and First Lady Jill Biden, along with other members of the Biden family, pose for a selfie as they watch fireworks at a White House barbecue on July 4. Hopes for the economy on Independence Day have been dashed by the spread of the delta variant and supply chain issues.

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Economic growth probably slowed sharply in the third quarter.  Here’s why: NPR

President Biden and First Lady Jill Biden, along with other members of the Biden family, pose for a selfie as they watch fireworks at a White House barbecue on July 4. Hopes for the economy on Independence Day have been dashed by the spread of the delta variant and supply chain issues.

Alex Wong / Getty Images

Restaurants and airlines that were hit by the pandemic in 2020 were hoping to cash in, as Americans dined out and booked vacations late.

Employers created more than one million jobs in July, including 57,000 in the manufacturing sector.

“Everyone was watching this pent-up demand coming in and chasing business,” says John Gessert, who runs a toy manufacturing company in Walled Lake, Michigan.

It didn’t last. Job growth slowed by almost two-thirds in August. September’s job gains were even weaker.

“Delta has arrived”

There is no mystery as to why a booming economy suddenly collapsed.

“What has happened is the delta has arrived,” Federal Reserve Chairman Jerome Powell told reporters last month.

As infections, hospitalizations and deaths from the variant coronavirus increased in late July and August, people were spending less money on in-person services and many plans shelved to return to work.

“Delta has done a lot of damage,” Zandi says. “It made consumers more careful, so travel decreased. People went to restaurants less often. It reshaped global supply chains.”

Economic growth probably slowed sharply in the third quarter.  Here’s why: NPR

A coronavirus pop-up test site sits on a Manhattan street in New York City on October 26. Delta-variant infections are on the decline, raising hopes of an economic recovery in the last three months of 2021.

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Economic growth probably slowed sharply in the third quarter.  Here’s why: NPR

A coronavirus pop-up test site sits on a Manhattan street in New York City on October 26. Delta-variant infections are on the decline, raising hopes of an economic recovery in the last three months of 2021.

Spencer Platt / Getty Images

In tourist-dependent Las Vegas, visitor traffic fell 9.2% between July and August and 2.1% in September.

“There certainly would have been a lot more people here without the Delta variant,” said Precious Briggs, an unemployed waiter who is waiting to be called back to work at Palace Station Casino.

While some companies suffer for customers, others struggle to find workers. Millions of potential employees were either sick with COVID-19, stayed at home for fear of catching it, or busy caring for loved ones who were sick.

“The challenge for us was to have enough drivers,” says Angela Eicher of the Nitetrain Coach Company, which provides bus transportation for touring musicians. “We had a few drivers under COVID contract while they were on the road. We had a few drivers under COVID contract while they were at home. “

Gessert’s toy company, which typically employs around 300 people in Michigan and Mississippi, was limping with 230.

“We had to limit the molding hours because we didn’t have enough people to assemble the parts,” explains Gessert.

No onion rings and no cheese sticks

The shortage of workers contributed – and was compounded by – a shortage of materials.

The plastic resin that Gessert’s company uses to make toys has doubled in price, and even cardboard packaging has sometimes been hard to find.

“What used to take a week now takes two to three weeks,” Gessert explains. “That’s the frustrating thing. We could have done a lot more business if plastic hadn’t become so expensive and if we had been able to hire people.”

Tackle Box 2 restaurant and boat launch on the Sandusky River in Ohio were very busy during the summer. But feeding the customers was a challenge.

“Onion rings. Cheese sticks. There are things I just can’t get,” says Sereta Stephens, whose father started the restaurant 30 years ago. “If I order it today, it might be here next week or in two weeks.”

Consumer spending held up relatively well in the quarter, in part due to federal aid payments that pumped up economies earlier in the year. But consumers might have bought even more products without the delivery delays and shortages.

“It’s good to say that people have money to spend. But unless they have things to spend, it doesn’t really affect the economy,” says Nela Richardson, economist. head of the payroll company ADP.

Economic growth probably slowed sharply in the third quarter.  Here’s why: NPR

A truck drives past stacked freight containers at the Port of Los Angeles, the country’s busiest container port, on October 15. Supply chain problems are expected to persist until next year.

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Mario Tama / Getty Images

Economic growth probably slowed sharply in the third quarter.  Here’s why: NPR

A truck drives past stacked freight containers at the Port of Los Angeles, the country’s busiest container port, on October 15. Supply chain problems are expected to persist until next year.

Mario Tama / Getty Images

But there is hope for the road ahead

While growth in the third quarter is disappointing, forecasters expect GDP to pick up in the final months of the year.

Coronavirus infections have fallen nearly 60% since early September. And as the health outlook improves, restaurant meals, air travel, and in-person entertainment have already started to rebound.

Winter is generally a slow season for touring musicians, but the Nitetrain bus schedule is full for November.

“People are eager to go out and see some live music,” Eicher says. “Plus, I think the musicians are ready to play live music again in front of the crowd.”

Herzon believes the economy will grow at an annual rate of almost 5% in the last three months of the year – slower than in the spring but much stronger than during the crisis in late summer.

“Consumers are spending, and that’s a good sign,” says Herzon. “As long as businesses can learn to manage their supply issues, growth can accelerate.”

The strength of the recovery will also depend on how quickly potential workers – some of whom have been sidelined by the delta wave – decide it is safe to reenter the workforce.

“I think the bigger question right now is, where are all these missing workers?” Richardson asks. “How long will they be missing and what will motivate them to return to the job market?”

She expects more job gains this winter than in August or September, but doubts employers will add a million jobs per month, as they did in July.

“We will probably see progress, but it will be continuous and uneven progress. And it will depend on how the virus is contained,” Richardson said. “People’s confidence in the economy right now is tied to health conditions.”

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