US economy grows 6.5% in Q2 as consumer spending surges

WASHINGTON • The US economy expanded at an annualised 6.5 per cent pace in the second quarter, a far slower recovery from the Covid-19 pandemic than economists had expected.

Growth was boosted by massive government aid and vaccinations against the pandemic, which fuelled spending on travel-related services. It follows a revised 6.3 per cent rate in the first quarter.

The gain meant that the world's largest economy surpassed its pre-pandemic size, climbing to US$19.4 trillion (S$26.3 trillion) and topping the size in the fourth quarter of 2019, the last before the virus outbreak.

Economists polled by Reuters had forecast GDP rising at an 8.5 per cent rate in the second quarter.

The government yesterday also published revisions to GDP data, which showed the US economy contracting 3.4 per cent last year, instead of 3.5 per cent as previously estimated. That is still the biggest drop in GDP since 1946.

The revisions to growth in other years and quarters were minor.

From 2015 to last year, GDP increased at an average annual rate of 1.1 per cent, unrevised from previously published estimates.

The National Bureau of Economic Research, the arbiter of US recessions, declared last week that the pandemic downturn, which started in February last year, ended in April that year.

Even with the second quarter marking the peak in growth in this cycle, the economic expansion is expected to remain solid for the rest of this year. A resurgence in Covid-19 infections, driven by the Delta variant of the coronavirus, however, poses a risk to the outlook. Higher inflation, if sustained, and ongoing supply chain disruptions could also slow the economy.

The Federal Reserve on Wednesday kept its overnight benchmark interest rate near zero and left its bond-buying programme unchanged.

Fed chair Jerome Powell told reporters the pandemic's economic effects continued to diminish, but risks to the outlook remain.

Economists expect growth of around 7 per cent this year, which would be the strongest performance since 1984. The International Monetary Fund on Tuesday boosted its growth forecasts for the US to 7 per cent this year and 4.9 per cent in 2022, up 0.6 and 1.4 percentage points respectively from the forecasts in April.

President Joe Biden's administration provided US$1.9 trillion in pandemic relief in March, sending one-time US$1,400 cheques to qualified households and extending a US$300 unemployment subsidy through early September. That brought the amount of government aid to nearly US$6 trillion since the pandemic started in the United States last year.

Nearly half of the population have been vaccinated against Covid-19, allowing Americans to travel, frequent restaurants and attend sports events, among services-related activities that were curbed early in the pandemic.

REUTERS, AGENCE FRANCE-PRESSE