US GDP: Growth or ‘deep hole’?

President Donald Trump’s campaign is touting the blockbuster GDP figure released this week as evidence the US economy is healing quickly, while his Democratic opponent Joe Biden is focused on the “deep hole” the economy is still in because of the pandemic.

Data from the commerce department showed that the economy grew at an annualised rate of 33.1% in the third quarter, beating expectations, but leaving the economy 3.5% below where it was at the end of 2019.

Behind that shortfall is a large number of jobless Americans whose struggles may factor into their decision whether to support incumbent Trump or former vice-president Biden in the presidential election.

Biden reminded voters this week that the economy is still in a “deep hole” and the recovery, which benefited mostly “those at the top”, was slowing.

“Yes, GDP rose last quarter, but visits to food banks haven’t slowed, and poverty has grown. African-Americans and Latinos still face double-digit unemployment rates,” Biden said. “I will fight side by side with the American people to rein in the virus and provide needed economic relief.”

Trump and Vice-President Mike Pence promised voters they would keep the growth going if given another term.

“GDP number just announced. Biggest and Best in the History of our Country, and not even close,” Trump tweeted on Thursday. “So glad this great GDP number came out before November 3rd.”

Voters say the economy is one of the most important issues they are weighing up during this presidential election. But the economic pain caused by the pandemic has not been evenly spread.

Some voters may find that the strong growth numbers do not match their experience of how the economy is doing after taking a big shock from Covid-19, said Josh Bivens, director of research for the Economic Policy Institute.

About half of the 22-million jobs lost during the pandemic have been recovered, but new hiring is slowing. Infections are rising, and some companies say they may need to make more cuts.

“That disjuncture between GDP and how most people feel about the economy is even going to be larger in the coming weeks and months,” said Bivens.

The economic crisis caused by the virus is unique because it fell hard on “labour-intensive” sectors such as leisure and hospitality, which often rely on a large number of workers to provide face-to-face services. Think of the servers, bartenders, housekeepers and other people in low-wage jobs completing tasks that are associated with relatively minor contributions to GDP, Bivens said.

That is different from, say, the automobile industry, where a combination of expensive machinery and materials requires fewer workers to make a larger contribution to GDP, he said. A recession that is more concentrated in that industry could involve a greater hit to economic output, but few jobs losses, Bivens said.

While some people are struggling with reduced hours and job losses, others are working from home, saving money and buying houses. That divide is likely to play out in the election, said Jason Pride, chief investment officer for private wealth at Glenmede.

Voters struggling financially after losing their jobs may vote for the candidate they think will deliver more stimulus, said Pride, whereas those who are doing fine financially are likely to vote in the opposite direction.

Trump has signalled support for more federal stimulus but has offered fewer specifics on jobs.