Economy rebounds, but it’s ‘optical illusion’

WASHINGTON — Americans may feel whiplashed by a report Thursday on the economy’s growth this summer, when an explosive rebound followed an epic collapse.

The government will likely estimate that the economy grew faster on an year. annualized basis last quarter than in any such period since recordkeeping began in 1947. Just be forewarned: The sizzling pace won’t last. The economy is weakening and facing renewed threats. Confirmed viral cases are surging. Hiring has sagged. Government stimulus has run out. And even last quarter’s outsize growth will leave the economy far below its level before the pandemic struck in March.

“The strength of this figure is an optical illusion,” Nancy Vanden Houten, an economist at Oxford Economics, wrote in a research note. “Growth has since slowed, and we expect markedly weaker activity” in the October-December quarter and beyond. The 7.9% job less rate is down from 14.7% at the outset of the pandemic recession. In the last major report on the economy before Election Day, economists have forecast that growth in the July-September quarter soared to a 31% annual rate, according to data provider FactSet. That would follow a plunge of 31.4% in the April-June period — by far the worst quarterly drop closed work. ever businesses — when and the threw eruption tens of of the millions coronavirus out of only the If economy, the a bit analysts’ more as than of outlook last two-thirds quarter, proves will of roughly the have output recovered accurate, it lost to a 5% the annual pandemic rate recession. in the first The three economy months shrank of the year at Mathematically, a bounce-back that equals or even slightly exceeds an earlier drop doesn’t mean the economy has fully recovered. The reason is that the rebound comes off a smaller numerical base. To use a simple example: A drop from 100 to 70 is a 30% fall. Yet a 30% rebound from 70 gets you only back to 91. You’d need a 43% gain to get back to 100.