Economy grows at record 33.1% rate
But recovery slows down as coronavirus cases climb
WASHINGTON – The U.S. economy grew at a record 33.1% annual rate in the July-september quarter but has yet to fully rebound from its plunge in the first half of the year – and the recovery is slowing as coronavirus cases surge and government aid dries up.
The Commerce Department's estimate Thursday of third-quarter growth showed that the nation has regained about two-thirds of the output that was lost early this year when the eruption of the virus closed businesses, threw tens of millions out of work and caused the deepest recession since the Great Depression.
The economy is now weakening again and facing renewed threats. Confirmed viral cases are surging. Hiring has sagged. Federal stimulus has run out. With no further federal aid in sight this year, Goldman Sachs has slashed its growth forecast for the current fourth quarter to a 3% annual rate from 6%.
Gregory Daco, chief U.S. economist at Oxford Economics, noted that the record third-quarter growth in the nation's gross domestic product “tells us little, if anything, about momentum heading into” the current quarter.
“The strong GDP performance gives a false impression of the economy's true health,” Daco wrote in a research note. “Much of the Q3 gain came from carryover effects from fast progress in May
July. ... We anticipate a much slower second phase of the recovery, with output not reclaiming its PRE-COVID level until late 2021.”
The latest GDP reading is the last major economic report before Election Day, after a campaign that President Donald Trump has sought to build around his economic record before the pandemic hit. Trump has drawn generally solid public support for his handling of the economy.
On Thursday, the government also reported that the number of Americans seeking unemployment benefits fell slightly last week to 751,000. That was the fewest weekly applications since March, but the level remains historically high and indicates that the pandemic is still forcing many employers to cut jobs.
The unemployment rate of 7.9% is down significantly from 14.7% at the start of the pandemic recession, but hiring has slowed for three straight months. The economy is still roughly 10.7 million jobs short of recovering all of the 22 million jobs that were lost to the pandemic.
The government's estimate of the third-quarter jump in the gross domestic product – the total output of goods and services in the United States – was the largerst increase on records dating to 1947. In the January-march quarter this year, GDP had contracted at a 5% annual rate before a record-setting 31.4% annual tumble in the spring.
Mark Zandi, chief economist at Moody's Analytics, said he thinks GDP will regain prepandemic levels by spring of next year, with GDP expanding 4.2% for 2021. But he warned that the job market might not fully recover until perhaps 2023.
“Many of the jobs in retailing, leisure and airlines have been permanently lost,” he said, “and those folks will have to find different work, and that will take time.”
The third-quarter economic growth was powered by a record 40.7% annual increase in consumer spending. Americans began shopping again after the spring shutdown, which had sent consumer spending sinking by a record 31.4% annual rate. Consumer spending accounts for roughly two-thirds of economic activity.
Business investment rose a strong annual rate 20.3%, reflecting a 70.1% surge in investment in equipment. Residential investment surged at a a 59.3% rate, reflecting a solid rebound being enjoyed by home builders as demand for homes rises.
The government reported the quarterly GDP changes as annual rates. That means the change for any given quarter is calculated as if it had occurred for an entire year.