The U.S. economy grew solidly in the second quarter, pulling the level of gross domestic product above its pre-pandemic peak, as massive government aid and vaccinations against COVID-19 fueled spending on goods and travel-related services.
The pace of GDP growth reported by the Commerce Department on Thursday was, however, slower than economists had expected. That was because businesses had to again draw down on meager inventories to meet the robust demand. Supply constraints, which have resulted in shortages of motor vehicles and some household appliances, are making it harder for business to replenish stocks.
Gross domestic product increased at a 6.5% annualized rate last quarter, the government said in its advance estimate of second-quarter GDP. The economy grew at a 6.3% rate in the first quarter, revised down from the previously reported 6.4% pace.
Economists polled by Reuters had forecast GDP rising at an 8.5% rate last quarter. Excluding inventories, trade and government spending, the economy grew at a 9.9% pace.
With the second-quarter estimate, the government published revisions to GDP data, which showed the economy contracting 3.4% in 2020, instead of 3.5% as previously estimated. That was still the biggest drop in GDP since 1946.
The revisions to growth in other years and quarters were minor. From 2015 to 2020, GDP increased at an average annual rate of 1.1%, unrevised from previously published estimates.
The National Bureau of Economic Research, the arbiter of U.S. recessions, declared last week that the pandemic downturn, which started in February 2020, ended in April 2020.
Even with the second quarter marking the peak in growth this cycle, the economic expansion is expected to remain solid for the remainder of this year. A resurgence in COVID-19 infections, driven by the Delta variant of the coronavirus, however, poses a risk to the outlook. Higher inflation, if sustained, as well as ongoing supply chain disruptions could also slow the economy.
The Federal Reserve on Wednesday kept its overnight benchmark interest rate near zero and left its bond-buying program unchanged. Fed Chair Jerome Powell told reporters that the pandemic’s economic effects continued to diminish, but risks to the outlook remain.
U.S. stocks opened higher. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.