The first official glimpse into the strength of the economy under President BidenJoe BidenHouse Democrat threatens to vote against party's spending bill if HBCUs don't get more federal aid Overnight Defense & National Security — The Pentagon's deadly mistake Haitians stuck in Texas extend Biden's immigration woes MORE comes Thursday morning with a government report measuring growth during the second quarter.
The Commerce Department on Thursday will release its estimate of gross domestic product (GDP) between April and June, and economists are expecting to see robust gains following a tepid start to the year.
The second quarter kicked off just days after Biden signed a $1.9 trillion economic relief bill authorizing another round of stimulus checks, extended enhanced jobless aid and hundreds of billions of dollars in relief across various sectors of the economy.
The financial boost, combined with rising vaccination rates and loosening pandemic restrictions, helped unleash more than a year of pent-up consumer demand that likely kicked the recovery up a notch, according to economists.
Beth Ann Bovino, chief U.S. economist at S&P Global Ratings, said she expects Thursday’s figures will show the economy expanded at an 11 percent pace during the second quarter, well above the consensus estimate of 8 percent.
“People felt confident and safe and started to go out and spend,” Bovino said.
“Yes, the [stimulus checks] were certainly a help, but I think the ball was already in motion,” she said. “Even back in December, they couldn’t spend fast enough, they were sitting on so much cash.”
Biden and congressional Democrats have been eager to highlight a strong economic rebound as they push their multitrillion-dollar infrastructure and social services agenda. A strong GDP report, following a gain of 1.7 million jobs in the second quarter, could give those efforts a valuable boost.
Constance Hunter, chief economist at KPMG, said the Commerce Department report will also reveal how businesses are adapting to the second year of the pandemic, particularly as millions of Americans remain unable or feel unsafe to return to work.
“We anticipate that investment in software and computer equipment and R&D is going to continue to be a strong driver of growth not just now but in the future,” she said, noting that “the level of uncertainty” around the pandemic “is really driving businesses to want to get more information and insights out of their data.”
But that pandemic-driven uncertainty may have also taken a chunk out of growth as the rush of demand overwhelmed global supply chains still gearing up after nearly a year of shutdowns. Wide-ranging supply shortages have also driven inflation higher than many economists had expected, and the COVID-19 delta variant has threatened to upend global shipping lines once more.
“That is really worrisome,” Hunter said. “What we’ve seen over and over again is that a single small supply chain bottleneck can have significant ripple effects throughout the economy.”
While Thursday will shed light into how much those emerging factors hindered the economy during the spring, the report may offer little help for the White House and Federal Reserve as each attempts to navigate concerns about the resilience of the U.S. economy.
The Fed is concluding a two-day policy meeting on Wednesday, with Chairman Jerome Powell slated to provide more insight that afternoon on the central bank’s approach to bolstering the economy.
Powell is certain to face questions from reporters over how soon the Fed plans to reduce its monthly purchases of Treasury bonds and mortgage-backed securities, a process kicked off in March 2020 to prevent credit markets from seizing.
The Fed chief has been able to keep the central bank united behind its pledge not to pull back on stimulus until the economy is close to full employment and on track to exceed its inflation target of 2 percent. But rising consumer and housing prices have stoked an internal debate within the Fed’s rate-setting committee over a quicker taper.
The Fed is unlikely to announce its plans to pare back its bond purchases Wednesday, nor will it raise interest rates from the current baseline range of zero to 0.25 percent. Soaring cases of the COVID-19 delta variant could also prompt more caution from the Fed with economic activity likely to fall off slightly, if not nearly as much as March 2020.
“It’s hard to forecast exactly when, where and how the delta variant rising in certain parts of the world can impact the global economy. But we’re very cognizant that the risks could be really significant,” Hunter said.