This week’s assessment will be given on US economic growth in the third quarter. Strong growth is expected to slow significantly in the second quarter due to supply chain disruptions and focus on Delta variant activity. The Federal Reserve Bank of Atlanta currently forecasts just 0.5% of GDP for the third quarter after a 6.7% annualized growth rate in the second quarter. The average value expected by analysts is optimistic at 2.8%, but the forecast ranges significantly from a decline of 5.0% to -0.1%. Most GDP statements can’t be ignored in the rearview mirror and have a significant impact on the market, but that’s probably not the case. The dire numbers could turn the odds for a November announcement to cut asset purchases from the Federal Reserve.
Thursday’s GDP release may be disappointing, but there’s good reason to believe the fourth quarter will be even better. Supply volatility continues and vehicle supplies may remain scarce, but consumer demand in the United States remains strong. As winter raises heating costs, there is a risk that rising energy costs will dampen consumer appetite. The supply chain issue is so well known that it can approach pessimism about its negative impact.
The shift away from delta options has started to reverse. Covid infections continue in the US and around the world, but a lower rate of change indicates the situation is improving. After an increase of 11 consecutive weekly infections, the rate of increase in Covid cases in the US decreased for the 5th week in a row. The infection momentum has surprisingly slowed in Japan, which bodes well for fourth-quarter production in Japan. If this trend continues, it will help ease some of the wind for economic activity and exports from Asia.