The Economy Is Stronger. These 4 Things Will Determine What Happens Next
STEVE INSKEEP, HOST:
If you are among the Americans who resumed eating out or traveling or attending ball games this spring, you may be part of the reason the United States economy grew sharply in the second quarter. It grew at a pace of 6.5%. So what does that number mean? Let's go to NPR's newly named business correspondent David Gura. David, good morning.
DAVID GURA, BYLINE: Thank you, Steve.
INSKEEP: So what does that number mean?
GURA: Well, first of all, it is a big number. Economists expected it would be around 8%, but this is the second-fastest period of growth since 2003. The fastest one was at the end of last summer, during a period of intense volatility in the middle of the pandemic when growth surged by 33%. One thing to keep in mind is GDP is backwards-looking. It's a snapshot of a moment in time. And in this case, as you said, it's a picture of growth at a crucial period in the economic recovery when it felt like the worst of the pandemic was behind us. That 6.5% number reflects businesses opening up - people going out to eat again, going to movies, going to concerts, traveling. And also, Steve, according to the report, government support - including expanded unemployment benefits.
INSKEEP: Which, of course, are now drying up. What was it like for businesses as customers did return?
GURA: Yeah, I spent some time this week talking to workers, talking to small business owners, and one of them is Ethnie Grazette. She works at a store in Brooklyn that sells bedding and towels. She's very glad to be back at work behind the cash register. That shop closed for a few months last year. And I asked her how she's feeling about business and about where things go from here. And Grazette told me the last few months have been pretty good.
ETHNIE GRAZETTE: I got a lot of customers coming in, just spending money. So it's good for me and for the people to get out and, you know, do a little bit of shopping. They still shop online, but I appreciate them coming in.
GURA: You know, I also talked to some economists, and they told me they expect growth will continue to be strong going forward this year. But they say the second quarter, these past few months, this was probably the high watermark, and growth is going to start slowing as the year goes on. They also said there are some risk factors that threaten the economic recovery.
INSKEEP: Such as what?
GURA: Well, the delta variant chief among them. It is a big concern. Economists told me they're watching the spread of this new variant closely, but they're not adjusting their forecasts for growth, at least not yet. They were pretty clear this isn't going to be deja vu. For one thing, half the U.S. population now is vaccinated against COVID-19, and they don't think we'll see shutdowns again. But there is a chance, Steve, new variants could change spending habits. It could cause some people to postpone trips they'd planned to take. They might decide to avoid crowded places, like stores and restaurants.
After a two-day meeting of the Fed Reserve wrapped up this week, Fed Chair Jerome Powell was asked how new strains of COVID-19 could affect the economy, and here's what he had to say.
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JEROME POWELL: With successive waves of COVID over the past year and some months now, there has tended to be less economic - less in the way of economic implications from each wave.
GURA: So Powell there sounding kind of optimistic, but of course, who knows what's going to happen here. The Fed also saying the path of the economic recovery continues to depend on the course of the virus.
INSKEEP: Just got time for a sentence here. Is there another risk factor you want to mention?
GURA: Yeah, inflation's still a big one, prices continuing to creep up. The Fed chairman reiterated his belief that those price increases are going to be transitory as he put it, but the concern is, if they continue to go up in a sustained way, Steve, the Fed could raise interest rates sooner. Right now the projections for that start happening in 2023.
INSKEEP: NPR's David Gura. Thanks.
GURA: Thank you.
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