The numbers: The U.S. economy grew rapidly in the spring and repaired most of the damage caused by the pandemic thanks to widespread coronavirus vaccinations and a nearly full reopening of the economy.
Gross domestic product, the official scorecard for the economy, expanded at a 6.5% annual pace in the second quarter. The size of the economy now exceeds pre-pandemic levels after a short but deep recession last year.
The goods news has been tempered by the recent surge in the delta strain of the coronavirus that’s induced the Biden administration to recommend mask-wearing again. It’s unclear how much damage the new outbreak could cause to the economy.
Economists polled by the Wall Street Journal had forecast a 9.1% growth rate in GDP. A bigger-than-expected decline in inventories and a surprising decline in government spending held down the overall increase.
The U.S. also grew 6.3% in the first quarter.
Last spring, the U.S. posted the single biggest economic contraction on record when the pandemic slammed the economy. GDP fell by a more than 30% annual clip.
Big picture: The surge in growth in the spring gave the economy plenty of momentum heading into the third quarter, but the GDP is mostly a look in the rearview mirror. Its tells us where the economy has been, but not where it’s going.
The good news is, the economy appears to have plenty of staying power.
For one thing, governments have been cautious about reimposing restrictions as the delta variant causes Covid cases to rise again in some states. Just as important, consumers built up a ton of savings during the pandemic and have plenty to spend. Businesses are also investing heavily to prepare for a post-pandemic world.
The economy will have to do without trillions of dollars in government financial stimulus, but as long as coronavirus cases stay low, the recovery should forge ahead at an accelerated pace.
Key details: Consumer spending, the main engine of the economy, rocketed 11.8% higher in the spring at an annual pace, the government said Thursday . That’s four times faster than the typical increase each quarter.
Americans bought plenty of goods such as new cars and consumer electronics, but they really splurged on the sort of services they avoided during the pandemic. Dining out, entertainment, travel, vacations and the like.
The delta variant could put a dent in spending on services, but that remains to be seen.
Business investment rose 3% as companies spent more on equipment and intellectual property. They likely would have invested even more money in producing goods if not for widespread shortages of supplies and labor.
These shortages have forced companies to pay higher prices and in some cases scale back factory hours.