Market Update – August 3, 2021

GDP in Q2 Surpasses Prior Peak but Misses the Mark

Gross Domestic Product (GDP), which is the largest measure of goods and services in the economy, expanded at a robust annualized pace of 6.5% in Q2, up from 6.3% in Q1, according to the U.S. Bureau of Economic Analysis. 

The strong back-to-back quarters place GDP above the pre-Covid peak reached in Q4 2019, as illustrated below.

Yet, the report almost seems a bit on the anti- climactic side. Despite cheap money and roughly $3 trillion in stimulus passed by Congress last December and March, many expected more. Analysts surveyed by the Wall Street Journal had projected growth of 8.4% in Q2.

This is the latest example of the brightest economic minds failing to hit the mark.

That said, let’s try not to throw cold water on a good report. Spending by businesses remained strong, while the consumer led the way. Notably, we saw a shift in consumer spending away from durable goods, such as autos and home appliances, to services tied to the reopening of the economy.

That is a healthy shift, as production bottlenecks have bogged down manufacturers and led to shortages and higher prices for some goods.

As overall demand is expected to moderate in Q3, manufacturers may have more time to catch up, increase production, and whittle away at backlogs.

Any increases in production would be positive for the economy and the availability of consumer goods, which have been lacking in some sectors.

While most economists believe Q2 was the peak, that doesn’t mean we’re going backwards. A peak simply means the peak in the growth rate probably hit its high mark in Q2 and a more moderate pace is on tap for the rest of the year.

While forecasters have struggled to hit the mark, most economists expect growth to remain solid, barring a sharp uptick in new Covid cases and related restrictions.

If you have any questions or would like to discuss any other matters, please let me know.

Created 2021-08-03 15:42:26