US Economic Update – July 2021

Q2 GDP growth below expectations but still strong.

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Key highlights:

  • The economy grew strongly in Q2 2021 even if the pace was below expectations.
  • Key drivers were consumption and business investment. While inventories were a headwind, they should turn into a tailwind as supply bottlenecks are addressed.
  • GDP is now above its pre-Covid-19 level, and we expect strong growth over H2 2021, although Covid-19 remains a risk with cases currently rising.
  • Quarterly PCE inflation was also very high, but we expect it to moderate from here and eventually settle at around 2.1-2.2% in 2023.
  • We still expect QE tapering to be announced later this year and to commence in early 2022. We don’t expect to see a start to Fed rate rises until mid-2023.

Find out more in NAB’s US Economic Update – July 2021