By Noah Rothstein
Consumers have played a pivotal role in America’s economic recovery.
Consumer spending increased by 2.8% in the second quarter, covering declines in other sectors of the economy. This renewed wave of spending has been fueled by widespread vaccination efforts, decreasing coronavirus cases — allowing Americans to get back to in-person activities.
Not to mention the continuing impact the third round of stimulus checks has had on consumer spending when they hit Americans’ bank accounts earlier this year in the spring.
The U.S. Bureau of Economic Analysis (BEA) released its Gross Domestic Product (GDP) estimate on Thursday, July 29, posting an increase of 6.5% in the second quarter, slightly above its revised first-quarter estimate of 6.3%.
“We finally saw the full pivot to services driving consumer spending instead of goods,” said Diane Swonk, chief economist for the accounting firm Grant Thornton.
Business investment has also remained strong, rising 1.9%, as spending for technology and equipment has been vital throughout the pandemic.
However, the housing sector was a drag on growth, shrinking 2.5% after three straight quarters of solid gains. That might seem surprising given stories of fierce bidding wars in intense housing markets. What matters to GDP is construction, and shortages of labor and supplies have hampered new home building, particularly high lumber prices.
Overall growth in the second quarter fell notably short of economists’ expectations. However, that was primarily because of weaker-than-expected government spending, particularly at the state and local level, as well as an unexpectedly sharp drop in inventories.
