NAM Monday Economic Report: Supply Chain Disruptions and the Delta Variant Slow GDP Growth

AICC, through its membership in the Council of Manufacturing Associations, is pleased to present the "Monday Economic Report" from the NATIONAL ASSOCIATION OF MANUFACTURERS (NAM).

By Chad Moutray, Ph.D., CBE – November 1, 2021

NAM Weekly Economic Toplines: 

The U.S. economy grew 2.0% at the annual rate in the third quarter, the slowest pace of growth since the pandemic began, down from 6.7% in the second quarter. The deceleration in economic growth stemmed from supply chain disruptions and the spread of the delta variant, with consumer and business spending easing significantly in the quarter. In the latest GDP data, durable goods purchases fell for the first time since the second quarter of 2020, led by sizable declines in spending for motor vehicles and parts due to the ongoing chip shortage. Nonresidential fixed investment and net exports were also notable drags on growth in the third quarter. Overall, real GDP should rebound in the fourth quarter, with 4.0% growth expected, and for 2021, the forecast is for 5.5% growth. For 2022, the current estimate is for 3.6% growth. Real GDP in the third quarter was 1.4% above the pace seen before the COVID-19 pandemic began. New orders for durable goods pulled back 0.4% in September, but excluding transportation equipment, new durable goods orders increased 0.4%. Nondefense capital goods excluding aircraft—a proxy for capital spending—rose 0.8% to a record $77.7 billion in September. Even as manufacturers struggle with supply chain bottlenecks, worker shortages and soaring costs, new durable goods orders have risen 10.0% year to date.  Manufacturing activity strengthened in October in surveys from the Dallas, Kansas City and Richmond Federal Reserve Banks. Firms continued to cite ongoing challenges with supply chain disruptions, workforce shortages and soaring input prices, but the outlook remained positive. Personal consumption expenditures increased 0.6% in September. Nondurable goods spending rose 0.9% for the month, but durable goods purchases fell for the fourth time in five months, down 0.2% in September. Service-sector expenditures increased 0.6% in September, continuing to improve as more Americans get out and about. Meanwhile, personal income fell 1.0% in September, but with 4.2% growth year-over-year. Wages and salaries increased 0.8% for the month, with total manufacturing wages and salaries rising 0.2% from $976.8 billion in August to $978.9 billion in September. More importantly, total wages and salaries have increased 9.3% year-over-year, with manufacturing data up 10.1% since September 2020.  In the personal income data, total unemployment insurance dropped from $352.3 billion in August to $97.7 billion in September, the lowest since March 2020. Meanwhile, initial and continuing unemployment insurance claims both fell to post-pandemic lows in the latest figures. The Index of Consumer Sentiment declined from 72.8 in September to 71.7 in October, but edging up from the previous estimate of 71.4, according to preliminary data from the University of Michigan and Thomson Reuters. Consumers continued to cite inflation as a key concern. The PCE deflator rose 0.3% in September, with food and energy prices up 1.1% and 1.3%, respectively. Excluding food and energy prices, the PCE deflator increased 0.2% in September, the slowest monthly pace of growth since February. Nonetheless, the PCE deflator has risen 4.4% year-over-year, the greatest increase since January 1991. Core inflation has increased 3.6% since September 2020, remaining the fastest pace of inflation since May 1991. I expect the Federal Open Market Committee to announce that it will start tapering its asset purchases at its Nov. 2–3 meeting (this week), with a possible interest rate hike in mid-2022. READ FULL REPORT