The U.S. economy hit a key milestone in the second quarter, surpassing its pre-pandemic peak thanks to a burst in spending from consumers.
Real gross domestic product, or GDP, increased at an annual rate of 6.5% in the second quarter, an acceleration from the 6.3% increase in the first quarter, according to data released Thursday by the Bureau of Economic Analysis. While the increase was less than economists expected, it was still about double the average growth rate for quarterly GDP prior to 2020
Consumers did most of the heavy lifting, aided by government relief programs like the stimulus payments issued in March and fewer restrictions on businesses. Personal consumption, the biggest contributor of GDP, jumped 11.8% in the second quarter, the fourth largest quarter-to-quarter growth in 74 years of government data. Spending on services shot up 12%, with people dining out and traveling more. Demand for durable goods—things like cars and electronics—and nondurable goods—like clothes and gasoline—grew as well, although at a slower pace than in the first quarter.
A measure of the country’s output, GDP now stands above where it was in the last quarter before the pandemic, more than recovering from a 31.2% plunge in the second quarter of 2020, when lockdowns during the onset of the pandemic crushed the economy. Notably, the recovery could have been even larger had a shortage of supplies not constrained inventory for businesses, economists said. The pace of economic growth will likely slow down going forward as the effects of stimulus money and the reopening fade.
But ING still projects that at some point this year the economy will be larger than it would have been had the pandemic not struck, something James Knightley, the firm’s chief international economist, said would be “a remarkable success story.”
“In consequence, today’s output figure is much lower than it could have been, but we remain confident that the economy can catch up again as the supply chain issues are rectified and capacity is rebuilt to cope with demand,” Knightley wrote in a commentary Thursday.
Consumers saved $1.97 trillion in the second quarter, or 10.9% of their disposable income. That represents a drop from the $4.07 trillion saved in the first quarter. Personal income declined 22% in the second quarter, mostly due to fewer people receiving stimulus payments, the BEA said.
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