Why Joe Biden's Economy Is Going In The Wrong Direction

How long will high inflation last in the US?

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(CNN Business) -

From supply chain chaos to worker shortages, America's economic recovery faced some serious challenges in the third quarter of the year.

Economists surveyed by Refinitiv estimate that between July and September the US economy grew at the slowest rate since the recovery began, an annualized rate of 2.7%, and a huge decline from the 6.7% rate in the spring.

At 2.7%, the growth rate of the US gross domestic product, the broadest measure of economic activity, would be practically where it was before the pandemic.

The growth rate in the third quarter of 2019, for example, was 2.8%.

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So it's not ... terrible.

It's just bad news for recovery standards.

But the Federal Reserve Bank of Atlanta's GDPNow model looks even more dire, projecting an annualized growth rate of just 0.5% in the third quarter.

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"Supply chain bottlenecks dramatically reduced activity last quarter despite massive stimulus spending," said Action Economics economists.

For the Biden administration, it means the White House and lawmakers have a lot of work to do to get the recovery back on track.

Washington said it will work with ports to resolve shipping delays, which sounds promising, but at this time $ 24 billion worth of merchandise still floats on container ships out of the ports of Los Angeles and Long Beach.

Scarcity wherever you look

The supply chain crisis is a problem everywhere.

Factories are waiting for materials and parts and consumers are waiting for finished products as prices continue to rise.

US industrial production fell 1.3% in September as manufacturers battled a shortage of materials and skilled workers.

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Over time, the supply chain stagnation should go away, or at least that's the hope.

But there is also a labor shortage that is holding companies back.

Job vacancies in the United States soared to a record 11.1 million in July as companies in all sectors sought staff to help meet rising consumer demand.

Restaurants, many of which had to lay off their staff, have struggled to get enough workers back, while manufacturers in particular complain about a lack of skilled labor.

American workers are in high demand, but many still struggle with their own caregiving responsibilities and the risk of contracting the virus.

Those millions of unfilled jobs also mean that workers can afford to wait until they find a good opportunity.

In response, many companies are raising wages to attract potential employees.

Nervous consumers

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Rising wages is definitely good for consumers, but Americans still had a lot of other things to worry about in the third quarter.

On the one hand, the most infectious delta variant of the coronavirus affected consumer confidence, sending the indicator to its lowest level since December 2011. The renewed increase in infections temporarily affected the willingness of the customer to be near strangers in restaurants or planes.

Meanwhile, inflation continued to hit new highs.

In June, July and September, consumer price inflation stood at 5.4% year-on-year, a 13-year high.

Another measure of inflation, the price index that tracks consumer spending, rose to 4.3% year-on-year in August, a 30-year high.

Rising prices have not deterred consumers, at least so far.

But there are concerns that prices could eventually rise enough for Americans to start closing their wallets.

Tuesday's consumer confidence data for October suggests that this has not happened yet and consumers are still happy to spend, good news for the fourth quarter.

"We expect a recovery for the US consumer in the last quarter of the year," said Joe Brusuelas, chief economist at RSM US.

In fact, hope for a strong holiday shopping season may have already helped with GDP growth in the third quarter: "The main catalyst for growth during the third quarter will almost certainly be a strong period of inventory creation before from the traditional holiday shopping season, "said Brusuelas.

Economy