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U.S. GDP grew 6.5 percent in second quarter, indicating recovery from the pandemic

By Ishika Dangayach on Jul 29, 2021 | 03:39 AM IST

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The United States GDP increased at an annual rate of 6.5 percent in the second quarter, up marginally from the first quarter, indicating that the country has escaped the clutches of the Covid-19 pandemic but still has a long way to go.

The second-quarter growth rate fell short of analysts' expectations. According to economists polled by The Wall Street Journal, gross domestic product, the broadest measure of goods and services produced in the U.S. increased at an annual pace of 8.4 percent from April to June.

Nonetheless, the expansion drove GDP over pre-pandemic levels, highlighting the rapidity with which the recovery began last summer. This spring, widespread company reopenings, vaccinations, and a large infusion of government pandemic aid assisted quick gains in consumer spending, the economy's major driver.

Gross private domestic investment decreased 3.5 percent in the third quarter, as decreases in private inventories and residential investment stifled increases. Rising imports and a 5% decrease in the pace of federal government expenditure, despite the rising budget deficit, were other factors, according to the Bureau of Economic Analysis report, CNBC reported.

Economists anticipate sustained robust growth, propelled by job gains, pent-up savings, and continued government assistance. However, many economists believe that growth peaked in the second quarter and would slow as the early boost from reopenings and fiscal stimulus wears off.

Rising prices, ongoing supply-chain problems, and a labor shortage are all issues that might slow development. The extremely infectious Delta variant of Covid-19 is also posing a rising threat to the economy.

Prior to the pandemic, the second-quarter increase was the highest since the third quarter of 2003.

Despite the fact that output has stayed below pre-pandemic levels, the National Bureau of Economic Research declared the recession that began in February 2020 to be the shortest on record, ending only two months later.

The second quarter, however, is expected to represent the peak of the pandemic recovery.

Meanwhile, consumer confidence reached its highest level since February 2020 in July. The rise in consumer confidence implies that consumers will continue to drive economic development this year.

This spring's robust rebound in consumer demand has been a double-edged sword for many companies. Sales have increased, allowing businesses to recoup losses but at the same time, the labor market still struggled to go back to normal.

According to the Labor Department, consumer prices increased 5.4 percent year on year in June, the highest rate since 2008. Price rises may slow if general economic growth slows.

Overall, analysts predict robust growth to continue, barring a significant resurgence of virus infections, as well as accompanying constraints and apprehension.

With inputs from WSJ

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