The Bureau of Economic Analysis (BEA) released the GDP numbers for the second quarter today, showing the economy grew 6.5 percent from April through June. Forecasters were expecting growth of around 8.5 percent, so this was a large miss.
There were several reasons growth missed its mark during the second quarter:
- Chip shortages depressed motor vehicle production and sales.
- Price increases for inputs and supply chain issues caused investment in homes and business structures to decline sharply, negatively impacting the construction industry.
- A draw down in business inventories also hurt growth, as businesses are having a hard time replenishing their supplies due to supply chain issues and difficulty getting workers.
While some of these are transitory issues caused by the pandemic, there are steps government can and must take to address supply chain issues and the worker shortage. For example:
- The worker shortage is driven by numerous factors and therefore requires a multi-faceted response. Policy makers should right-size unemployment benefits, act to address child care affordability and access, support employer-led rapid worker skilling programs, and increase legal employment-based immigration to the United States.
- The back-ups that begin at our West Coast ports are increasing shipping costs and contributing to delays for the delivery of a wide variety of goods. Policymakers should be working to help America’s largest West Coast ports expand capacity and increase operations to alleviate backlogs.
- The Sec. 232 tariffs on steel and aluminum from our closest allies in Europe, Japan, and Korea adds 25% to the prices of these imported metals without doing anything to challenge of Chinese overcapacity. The administration should lift these tariffs on our allies today.
- While softwood lumber prices have fallen in the past two months, they remain elevated. The anti-dumping and countervailing duties on lumber from Canada are set to double later this year. The administration should reach an agreement with Canada to suspend these duties.
If we get policy right and we continue to make advances against COVID, going forward the rest of the year, we can expect strong growth. — almost 8 percent in the third quarter and 5 percent in the fourth. That growth should carry over into 2022 as well.
But, but, but…. these projections assume that inflation does not become a bigger problem, workers go back to work at a higher rate, and supply chain issues do not get worse. It also assumes there is not another serious resurgence of the virus, such as a variant that breaks through vaccine immunity.
While the 2nd quarter GDP report disappoints, we are still on track for a strong 2022. Some of the growth we missed out in the quarter we will get back later this year when issues such as supply chain pressures, worker shortages and chip shortages ease.