GDP grows at a 6.5% annual rate in the second quarter. That’s good, but…

If all of the unemployed workers who were called back to work actually went back to work, the growth number could have exceeded 8%.

According to the Bureau of Economic Analysis (BEA) first estimate of GDP growth, the economy grew 1.6% in the second quarter of this year. That means growth was 6.5% on an annual basis. This is slightly higher than the 6.3% growth in the first quarter.

While 6.5% annual growth is very strong, the number was below economists’ expectations. The consensus view was that the economy would be growing at an 8.5% annual rate. Why were the economists’ forecasts so far off the actual number?

Since May of last year, the economy has recovered very rapidly. We experienced a V-shaped recovery from the steep, but very short lived, recession. The recession actually lasted about six weeks, from mid-March to the end of April. Because of the economic shutdown, GDP growth turned negative. On an annual basis, second quarter GDP economic growth was almost -32%.

But the economy began to re-open in May. More than 4.4 million jobs were added back to the economy in May and June of last year. The third quarter GDP growth hit a whopping 33.1%.

Then last fall, the virus flared up again. Some businesses were forced to shut down. That resulted in growth slowing to an annual rate of 4%. The federal government responded to that slowdown by passing another stimulus package. This was in addition to a series of multi-trillion dollar stimulus packages passed in Spring 2020.

Last Spring, the economy almost fully re-opened. Economists saw the unemployment rate fall in Spring and early summer, leading most to forecast 8.5% growth for the second quarter. The 6.5% actual number was a surprise.

It appears that growth is being restrained by mostly lower income workers who refuse to go back to work when their employer calls them Many say that with the state unemployment compensation and with the additionally $300 weekly benefit paid by the federal government, it simply doesn’t make sense to return to work.

For lower-income earners, returning to a 40 hour week will result in about the same amount of wages that they are receiving from the…