Spending fell on structures such as office buildings, plants and oil rigs.
Rapidly increasing sales and slower production, meanwhile triggered a big decline in the amount of goods that businesses stockpiled for future sale.
The value of inventories sank by a whopping $165.9 billion. The larger-than-expected drawndown also depressed the headline GDP figure and suggests these headwinds could constrain economic growth through the rest of the year.
Investment in new housing, meanwhile, sank 10% to mark the first decline in a year.
Home builders face similar problems with high material prices and finding skilled craftsmen. There’s plenty of demand for new homes with mortgage rates so low, but builders can’t build houses fast enough.
In a surprising twist, government outlays fell 1.5%. Washington has pumped trillions of dollars of stimulus money into the economy, but spending dropped off in the second quarter after a 4.2% spike in the first three months of the year.
Although the U.S. is running record international trade deficits again, the widening gap only had a small negative effect on GDP. Imports rose 7.8% and exports increased 6%.
Inflation, as expected, surged in the spring. The annual rate of inflation soared to 6.4% from 3.8% in the first quarter. That’s the biggest increase since 1982.
The Federal Reserve insists the burst of inflation is almost entirely the result of the economic recovery and that it will fade by next year.
What they are saying? “GDP is now back above its pre-crisis peak,” said senior economist Bill Adams of PNC Financial Services. “The economy has recovered much faster than after the 2008-09 recession, when it took three and a half years for real GDP to reach its pre-crisis level.”
“The economy continues to grow at a robust pace — well above the long-term trend — as we dig ourselves out of the hole that was created by last year’s economic shutdown,” said chief investment officer Jim Baird of Plante Moran Financial Advisors. “The wildcard is the growing concern about the risk presented by the COVID-19 delta variant and what its spread could mean in the coming months.”