The Higgins Report: Inflation Up, GDP Off, But Year to End Strong

By Joe Higgins, Quest 4 Quality

  • Q3 GDP disappoints with slower than expect growth
  • Blame it on shortages, broken supply chains, and the Delta variant
  • Inflation skyrockets but appears to be moderating


The U.S. Commerce Department announced last week that America’s gross domestic product missed expectations in the third quarter of 2021 and dropped to its slowest growth since March 2020. It was a disappointing performance but doesn’t necessarily signal a weak fourth quarter.

GDP came in at an annualized rate of 2 percent in Q3 but missed economists’ expectations of 2.7 percent. We were expecting a deceleration of economic activity due to the Delta variant, but not to this degree. After two solid quarters where GDP grew 6.2 percent in Q1 and 6.7 percent in Q2, economists thought the high vaccination rate would impede the virus’s growth and move consumers to get out and spend their money. Obviously, this did not happen.

Consumer confidence was down slightly in the report; government spending increased in the quarter; and business inventories rose substantially. Losses came from the lack of exports as the container shortages hampered outbound freight, and a logjam at ports across America created roadblocks and time delays. Also, keep in mind that consumer spending in the second quarter was up over 12 percent and, despite cratering, was still up 1.6 percent in Q3.

Economists did not discount the impact of the Delta variant, as the pandemic has been a leading economic indicator for almost two years. This more contagious variant began its surge in July and peaked in mid-September. The main driver that controlled this surge — and limited the most damaging effects that we saw with the last rise in infections — was the elevated level of vaccinations in most states. This slowed the case count, hospitalizations and deaths, but its existence hampered travel, hotel stays, dining out and shopping. This alone had an oversized impact on Q3 GDP.

There has been considerable press about the dysfunction at the ports, shipping delays, transit time, and container shortages. These issues were the real story of the quarter, as they had a significantly negative impact on GDP and our economy throughout Q3.

See: California Ports Remain a Supply Chain Chokepoint

Go into any large store today and you will see empty shelves for a variety of products. It is a double-edged sword: There are shortages, and American consumers have ratcheted up their spending, which has resulted in a 30-plus percent increase in imports. Imports do not count in our GDP results because they are not made in America.

While this quarter did not meet expectations, business capital spending surged. This could be corporations predicting the return of consumers back into the economy. One indication of a strong holiday season is the Atlanta Fed’s GDP forecast for Q4, which currently stands at 4.1 percent. The one thing that could slow this down is the steep drop in automobile sales due to the semiconductor chip shortage that is plaguing the economy.


September’s Consumer Price Index (CPI), as reported by the Commerce Department, showed the most significant increase in pricing since the 1990s, despite the massive reduction in stimulus spending. The personal expenditure price index had an annualized gain of 4.3 percent. Two areas of most concerns for consumers were energy and food. Energy costs rose 25 percent as oil hit $85 a barrel and gasoline was up 42 percent, the highest we have seen since 2018. Food was up 4.1 percent, meat products were up over 10 percent, and services were up 6.4 percent. Unfortunately, inflation will be with us for the balance of this year and into mid-2022.

The Bottom Line

The first two quarters of 2021 were the best we have had since the dawn of the dot-com era. I do not believe we can continue 6 percent growth in the economy any longer. Since the Great Recession, GDP has averaged 2.3 percent, and America will get back into that pattern next year. The U.S. economy has received help from three things: The $2 trillion tax cut in 2018, the $2.4 trillion Cares Act in 2020, and the $1.9 trillion American Rescue Plan Act earlier this year. This gravy train has run its course in the country. We have spent over $6 trillion, and now our economy will begin its slow return to more traditional numbers.

The Delta surge appears to be behind us, but no one can predict COVID’s future course, including the experts. Vaccinations will continue to rise across the U.S., thus shortening the life cycle of the coronavirus.

Supply-chain disruptions will continue throughout 2022 as this is a complex global issue without any fix in sight. It will be an inflation-inducing problem in the short term and a revenue killer in the long term.

The semiconductor shortage will worsen before it gets better, as only one manufacturer, Taiwan Semiconductor Manufacturing Corp., controls about 92 percent of all the high-end chips being used today. TSMC and its South Korean rival Samsung are the only foundries capable of manufacturing the most advanced 5-nanometer chips.

The good news is the appliance, furniture and consumer electronics sectors will remain strong through year-end, as consumers are all set with high home equity, stock market gains, and increases in their 401k’s. Should make for good selling in Q4!

Joe Higgins is a 42-year veteran of GE and Whirlpool Corp. who brings his experience to bear as a business consultant, public speaker, AVB keynoter and YourSource News contributor. Visit his website, Quest 4 Quality with Joe, at

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