Economic growth in the third quarter will capture the impact of the delta variant on the economy as disruptions to supply chains and rising inflation have dampened household consumption and fixed investment by businesses.
We expect that U.S. gross domestic product in the third quarter will arrive at 2.9%, less than half of the better than 6% pace of growth we had expected at the outset of the year.
While we expect a return to form for the American consumer in the final quarter of the year, we anticipate a paltry 1% growth pace out of domestic households during the third quarter, which is disappointing any way one looks at it and is a function of rising inflation.
The major catalyst for growth during the third quarter will almost certainly be a strong period of inventory building ahead of the traditional holiday shopping season that we think should arrive near 3.5%.
But while that may create some questions about the quality of growth and risks to the domestic economic outlook, we are confident that the American consumer will hit the accelerator during the holidays and purchase whatever inventory that retailers put on the shelves in addition to what may be record spending on experiences.
Finally, we expect government spending to advance by roughly 1.5% on the quarter and net exports to act as a modest drag on overall growth during the June-to-September period.
