By Lucia Mutikani

WASHINGTON, (Reuters) – The U.S. economy grew at its lowest rate in over a year during the third quarter. This was likely due to COVID-19-related infections. These caused further stress on global supply chains and led to shortages of automobiles. Consumer spending almost stopped.

A Commerce Department report on Thursday’s advanced gross domestic product is likely to also show high inflation. These are a result of the country-wide economic shortages as well as pandemic assistance money, which have slowed growth. Economy was affected also by Hurricane Ida’s destruction of U.S. offshore energy production towards the end August.

There are some signs, however that the quarter ended with an increase in economic activity due to declining Coronavirus incidences caused by the Delta variant.

Ryan Sweet (Senior Economist at Moody’s Analytics, West Chester, Pennsylvania) said that Delta is responsible for the noticeable slowdown. We will witness growth rebound in the fourth and first half of next years as the Delta effect starts to fade. This doesn’t necessarily mean we will not have more COVID waves in the future, but each wave brings down economic costs.

According to a Reuters poll of economists, GDP growth was likely to have increased by 2.7% annually last quarter. This poll was taken before Wednesday’s data release. The results showed that the deficit in goods trade in September increased sharply amid an increase in exports.

Goldman Sachs (NYSE) cut its GDP growth forecast by half an percentage point, to 2.75%. This was in response to the record-breaking goods trade deficit. Atlanta Federal Reserve has lowered its forecast, which was already very low at 0.5%, to 0.2%.

No matter what number it was, last quarter’s economic performance was likely the worst since 2020’s second quarter. That quarter saw a dramatic contraction due to strict measures that were required in order to control the COVID-19 outbreak. In the second quarter, the economy experienced 6.7% growth. This Delta variant exacerbated labor shortages in factories, ports and mines, which gumming up supply chains.

A moderate rate of inventory drawdown is responsible for the expected meager growth. The shortages in motor vehicles and overall inventory accumulation probably aided to the weakening of global inventories. A shortage of semiconductors in the world made September the worst month of motor vehicle production, except for the spring 2020 shutdown.

According to Veronica Clark (an economist at ), the largest increase in GDP could come from a slower drawdown than in quarter 2. Supply shortages initially presented as weaker inventories, but have now become a constraint to consumption. Citigroup New York (NYSE:).

The April-June quarter saw a strong growth rate of 12% in consumer spending. However, it is now expected that the economy will slow down. While automobiles account for the bulk of the expected stagnation in the United States, the Delta model also reduced spending on services like dining out and air travel.

GLIMMERS OF HOPES

The Federal Reserve’s flexible target of 2% inflation was exceeded by inflation, and this led to households losing their spending power. The International Monetary Fund reduced its 2021 estimate of growth for the United States due to price pressures and supply chain disruptions, from 7.0% in July.

A slower rate of growth won’t affect the Fed’s plan to begin reducing the money it injects into the economy by purchasing monthly bonds.

There is hope at the end. There is a summer wave of COVID-19 cases behind it, and the number of infections has been declining in recent weeks. The number of vaccines has also increased. This month, consumer confidence rose due to improved public health. There has been a decline in the number of Americans filing claims for unemployment benefits, which is now at a 19 month low.

A separate Labor Department report on Thursday will confirm this trend.

A Reuters survey suggests that initial claims for unemployment benefits were at a seasonally adjusted 290,000. This would be the third consecutive week in which claims have remained under the 300,000.

There is disagreement among economists over whether equipment business investment has maintained its double-digit rate of growth in the last quarter. The Wednesday data revealed a significant increase in capital goods shipment in September, but not aircraft.

Although some economists see this as a sign that there is strong spending on equipment, others warn that the high price of shipping can reduce their value. Concerns also exist that companies may not be able to purchase new or increased motor vehicles due to a scarcity.

Michael Pearce is an American economist who works at Capital Economics, New York. He stated that “just as the decline in motor vehicle sales is driving down consumption, so is the corresponding fall in fleet sales” and added that this is also impacting business equipment investment. The sharp decline in truck and auto shipments suggests that business equipment investment may have contracted in the third quarter, instead of a double-digit increase annually.

After a September sharp decline in exports of industrial materials, trade was likely to be a major drag on GDP growth for the fifth consecutive quarter. The housing market was likely hit again by high prices for building materials and rising house prices, although government spending may have rebounded.