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Q2 GDP Growth and Inflation
On Thursday, the U.S. Bureau of Economic Analysis (BEA) will release its latest estimate of second-quarter Gross Domestic Product (GDP) — a measure of the market value of final goods and services produced across the economy within a calendar year.
Trading Economics expects GDP to grow at an annual rate of 6.5%. This figure aligns with the first estimate released by the BEA at the end of July, and slightly above the 6.1% growth reported in Q1.
This number would confirm that the U.S. economy continues to recover from the COVID-19 recession, which sent GDP down 5.1% in June 2020 and 31.2% in July 2020.
The credit for the economic recovery goes to American households and fiscal easing, such as the $1.9-trillion American Rescue Plan, which placed $1 trillion in the hands of lower-income families in the form of checks, unemployment benefits, and tax credits.
These families have a high “marginal propensity to consume,” meaning they will spend most of this money rather than saving it.
Then there’s the $1.8 trillion in excess savings accumulated by high-income households during the pandemic, adding fuel to the resurgence in consumer spending.
Things could get even better by the end of the year. Higher spending could set the U.S. economy into a virtuous cycle of higher growth and lower unemployment, which leads to even higher spending and further higher growth.
Oxford Economics expects the cumulative fiscal stimulus to rise from 18% of the GDP in 2020 to 25% in 2021; adding 7 million jobs, and pushing the unemployment rate below 5% by year-end.
The BEA will also release the Q2 GDP Deflator — a measure used to adjust the GDP for inflation. It is expected to rise at an annual rate of 6.1%, up from 4.3% in the previous quarter, and well ahead of the Fed’s 2% average target.
State of the Labor Market
Thursday turns out to be a busy day for government reporting on the state of the U.S. economy. The Labor Department is slated to report the initial jobless claims for the week ending August 21. These are claims filed by people who have lost their jobs in that particular week.
They are expected to come in at 336,000, down slightly from the 348,000 in the previous week, confirming that the labor market continues to recover from the pandemic, as businesses are opening up and hiring.
Nonetheless, the labor market has a long way to go before returning to the pre-pandemic levels, when jobless claims averaged 200,000.
State of the Housing Market
On Tuesday, the U.S. Census Bureau will release data on new home sales. The report is expected to show that recent home sales rose by 1% in July, to 680,000 units. That would be a big turnaround from June, where new home sales dropped by 6.6%, to a seasonally adjusted annual rate of 676,000. That had been the third consecutive decline and the lowest level since April 2020.
The U.S. housing sector has been strong during the COVID-19 recession, but it has been cooling off in recent months, as the issues of affordability and rising material costs begin to weigh in on the housing market.
Summary and Conclusions
A host of government data scheduled for release this week will confirm that the U.S. economy continues to recover from the pandemic, with inflation running above the Fed’s goals. In addition, the labor and housing markets are likely to continue to recover, in tandem with the overall economy.
