THE LATEST GDP DATA: U.S. Economic Output Climbs Back to Pre-Pandemic Level

By at 29 July, 2021, 11:04 am


According to the latest GDP (gross domestic product) report, the U.S. economy grew at a real annualized rate of 6.5 percent in the second quarter of 2021. After four straight quarters of growth, U.S. real economic output recovered to where it was before the pandemic hit. That’s a noteworthy accomplishment made by U.S. entrepreneurs, businesses, workers and investors.

Source: Federal Reserve Bank of St. Louis, FRED

While significant challenges remain – including recovering millions of lost jobs and closed small businesses, supply chain challenges, inflation running hot, and regaining lost growth – this economic bounce back from the depths hit in the second quarter of 2020 is worth celebrating.

In the second quarter, real nonresidential (or business) investment grew by 8.0 percent, with investment in equipment and intellectual property products up strong (+13.0 percent and +10.7 percent, respectively), but investment in structures down by 7.0 percent (and it has been down in six of the last seven quarters). And after big gains in the previous three quarters, residential investment declined by 9.8 percent in the second quarter 2021.

Trade grew in the second quarter, with real exports up by 6.0 percent and imports by 7.8 percent.

And real personal consumption expenditures grew by 11.8 percent in the second quarter.

As for comparing major subcategories of real GDP to pre-pandemic levels, real nonresidential investment got back to its fourth quarter 2019 level in the second quarter of 2021. Meanwhile, real residential investment quickly passed that level in the third quarter of 2020, reflecting the hot housing market. Real personal consumption expenditures had recovered by the fourth quarter 2020, and real imports did so in the fourth quarter of 2020 as well. However, real exports still have not recovered to their pre-pandemic levels.

After a wild, unprecedented ride, with declines and increases (again, at seasonally-adjusted annualized rates) in real GDP lying far outside the norm – that is, declines of 5.1 percent and 33.8 percent in the first and second quarters of 2020, respectively, followed by increases of 33.8 percent, 4.5 percent, 6.3 percent and 6.5 percent in the third and fourth quarters of 2020 and first and second quarters of 2021, respectively) – the economy effectively stood in the second quarter of this year where it was in the fourth quarter of 2019. The U.S. effectively has stalled out for a year and a half.

Policymakers should take this moment to pause and think about whether the policy agenda they are pushing will advance or impede economic growth going forward. That specifically means: Would these policies improve the environment for economic growth led by entrepreneurship and private investment, or will it raise costs and obstacles for, and disincentivize these vital economic activities?

Make no mistake, if the agenda is about increasing taxes, imposing more regulations, restricting free trade, and expanding government spending, then the agenda will work against economic, income and job growth.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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