The U.S. economy will continue to expand in 2022 and is likely to have a stronger finish at the end of the December quarter thanks to rising consumer spending, according to PNC Chief Economist Gus Faucher.
"Growth should be stronger in the fourth quarter, and throughout 2022. Consumer spending growth will be strong as households spend down some of the $2 trillion in extra saving they have accumulated from government assistance and limited opportunities to spend during the pandemic," Faucher wrote in a note on Wednesday.
Consumer spending growth will shift from goods to services for the next few years as the economy reopens.
"Consumer spending growth will shift from goods to services as the pandemic fades and the economy continues to reopen. Supply-chain problems are expected to ease, supporting consumer spending on durable goods, homebuilding, business investment, and investment in inventories," Faucher said.
These factors will also support a lower trade deficit as well as stronger growth, added Faucher. The U.S. trade deficit narrowed sharply in October as exports soared to a record high.
The trade gap plunged 17.6% to a six-month low of $67.1 billion. That was the biggest percentage drop since April 2015, reflecting an increase in the flow of goods and services.
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PNC expects growth of 3.8% in 2022, well above the economy’s long-run potential.
GDP growth slowed in the third quarter as the Delta variant and supply chain issues weighed on consumer spending growth, Faucher noted.
"Supply-chain issues also weighed on consumer spending, particularly for durable goods, including autos," added Faucher.
U.S. third quarter gross domestic product, adjusted for inflation, was higher at 2.3%, indicating a slightly faster pace of recovery, latest government data showed. The new data was reported by the Bureau of Economic Analysis.
Real GDP, which measures the nation’s total output of goods and services, increased 4.9% in the third quarter of 2021.
Real GDP growth was reported at 2% in the preliminary estimate, and 2.1% in the second estimate.