The third quarter, however, was one for the record books. Gross domestic product – the broadest measure of economic activity – grew at an annualized and seasonally adjusted rate of 33.1% between July and September. This was a faster rate of expansion than economists had predicted.
But with the unprecedented economic woes of the pandemic, some economists are suggesting that real GDP growth is the best metric to tell the story of the U.S. economy.
Looking at quarterly data alone, GDP grew 7.4% between the second and third quarters, compared to a drop of 9% between the first and second quarters.
The rapid growth reflects the reboot of the economy after the spring lockdown, but America is not out of the woods just yet.
“This is going to be grasped by both ends of the political spectrum as proof of the strength of the post-containment economic rebound or a cursory warning that the gains may be short-lived,” said James, senior global economist at Aberdeen Standard Investments. . McCann in the comments sent by email.
There is some truth on both sides: The economy has partially rebounded as lockdown restrictions have eased. But the big push is behind us and Covid-19 infections are on the rise again. On top of that, Congress remains deadlocked on another stimulus package.
Even though the third quarter annualized growth rate was larger than the second quarter decline, that doesn’t mean the economy has fully rebounded.
The drop between April and June was so large that while the increase in the third quarter was large, it is starting from a much lower base. Comparing the size of the economy in the third quarter to last year’s pre-pandemic fourth quarter hammers this house: Overall, economic activity is still $ 670 billion, or 3.5% less than it was at the end of 2019.
As we emerge from the sharp swings in economic activity between March and September, “the sober realities of the economy will become more apparent,” said Brian Coulton, chief economist at Fitch Ratings.
He expects growth to slow sharply again: “We are still a long way from normalization and the surge in virus cases means social distancing and all of its related economic implications are here to stay.”
Not yet back to normal
But economists fear the economy will slow again in the last three months of the year. Meanwhile, Covid-19 infections are on the rise again and worry about renewed lockdown restrictions that could worsen the pandemic recession. In Europe, rising infection rates have already led to stricter rules.
Personal income fell in the third quarter, falling by $ 541 billion after rising $ 1.45 trillion in the second quarter, as the effect of pandemic programs, including stimulus controls, wore off.
As the impact of these stimulus packages fades, it could dampen the recovery. This is because the US economy relies heavily on consumer spending.
On the other end of the spectrum, federal, state and local government spending has declined and the country has imported more foreign goods, which is subtracted from GDP.
Economists expect much more modest growth – well below the 10% annualized mark – in the last quarter of the year. It will be until the end of 2021 for economic output to return to what it was before the virus struck, said Gregory Daco, chief U.S. economist at Oxford Economics.