WASHINGTON, D.C. ― The US economy was officially back and fully recovered from the pandemic as of June, although a recent surge in COVID cases could threaten new uncertainty ahead.
The economy grew at an annual rate of 6.5 percent in the quarter ending in June, below economists’ forecasts of at least 8 percent, as coronavirus vaccinations and unleashed consumer spending added momentum to the recovery.
For the first time since the pandemic took hold, economic output eclipsed its pre-pandemic high, after adjusting for inflation. However, that doesn't mean the economy is back to the level it would have been at, had the pandemic not happened, because there is roughly a year of continued economic growth missing.
The gross domestic product report, released Thursday by the Commerce Department’s Bureau of Economic Analysis, offered a backward-looking snapshot of the months when hiring picked up speed and people felt comfortable booking vacations, eating at restaurants, and buying tickets to concerts or movies. Some Americans got $1,400 stimulus checks in the late spring or received extended unemployment benefits, providing a financial cushion that helped households step back into their old routines — and spend.
Economists still hope for strong continued growth in 2021. But that optimism has been complicated by surging COVID cases and the spread of the Delta variant of the coronavirus, particularly among unvaccinated people. On Tuesday, the Centers for Disease Control and Prevention urged indoor mask-wearing for people in COVID hot spots and other circumstances.
The economic repercussions are unclear. The Biden administration is pledging a bold economic agenda and urging Americans to get vaccinated. Policymakers at the Federal Reserve and elsewhere have made clear that controlling the pandemic is key to stabilizing the recovery.
On Wednesday, Fed Chair Jerome Powell said the Delta variant could have fewer implications for the economy, if it follows the pattern of past waves of COVID surges. Powell said it was “plausible” that the Delta variant, which is rapidly spreading among unvaccinated people, could discourage people from dining out or traveling, or delay school reopenings. But vaccinations, and society’s ability to adjust to life in a pandemic, may offer a cushion from harsh economic strain, Powell said.
Still, policymakers and economists must see through the fog of this recovery, despite rocky indicators that are changing in real time. Labor Department released jobless claim numbers on Thursday morning that suggest a stagnant hiring market that's newly unsettled by surging delta variant coronavirus cases in some parts of the country.
An estimated 400,000 Americans filed initial unemployment claims last week, representing a drop of 24,000 over the previous week. But it failed to fully recover from a surprise spike that drove the indicator up from 368,000.
Once again, state officials in Massachusetts said that due to a “system processing error,” initial claims data for regular unemployment benefits for last week and the week prior are “estimated values” based on data reported to the Employment and Training Administration. The state said the corrected values will be provided when they are available.
Based on that data, about 6,300 individuals filed claims for unemployment benefits in Massachusetts last week, down about 520 from the week prior.
Another 1,620 individuals sought aid under the Pandemic Unemployment Assistance program, which helps those not eligible for traditional benefits, such as gig workers, up about 110.
An additional 9,000 individuals filed new claims under extended benefits programs, which provide aid to those who have exhausted traditional aid but are still out of work, up about 3,670 from the previous week. State officials said the increase in fillings, which were for the Pandemic Emergency Unemployment Compensation program, were likely due to the federal Extended Benefits program triggering off on July 17, which may have caused claimants to seek PEUC benefits.
Economists were looking to Thursday’s GDP report to understand where people and businesses spent their money as lockdowns faded away and consumer confidence rebounded. GDP, a measure of economic output, is the total value of all goods and services, from manifolds to manicures, produced in a country in a given quarter, with adjustments for factors such as trade and inflation.
Economists have been closely tracking whether consumers are shift their spending from services to goods. When people stayed home last year, they bought “stuff,” like patio furniture, home office decor, or workout equipment.
Thursday’s GDP report showed a 12 percent in climb consumer spending on services, up from 3.9 percent in the first quarter. That’s an encouraging sign since more spending on things like gym memberships or travel also help bring jobs back in industries hit hard by the pandemic. Restaurant dining has also rebounded, at times surpassing pre-pandemic levels. In June, employment jumped in the leisure and hospitality sectors, along with hotels, arts and entertainment.
However, if COVID cases continue to climb, workers get sick, or new mask mandates go into effect, it’s unclear whether people will start to withdraw again.
Personal income fell significantly in the second quarter compared to the first three months of the year, largely because of a drop off in federal aid tied to coronavirus relief programs. The Bureau of Economic Analysis pointed to a decrease in stimulus checks that millions of American households received earlier in the year, through stimulus packages passed in December and March.
Meanwhile, global supply chains are still struggling to keep up with so much consumer demand, contributing to rising inflation. Backlogged supply chains are also constraining how much inventory businesses can keep on the shelves and how quickly they can boost productivity. The GDP report showed a 9.8 percent drop off in residential investment, and a 7 percent drop in investment in structures, as supply constraints weighed on construction.