US economy grows 7.4% in Q3, biggest gain ever
The United States (US) economic output grew at the fastest pace on record last quarter as businesses began to reopen and customers returned to stores. But the economy has climbed only partway out of its pandemic-induced hole, and progress is slowing.
The Gross Domestic Product grew 7.4 percent in the third quarter, the Commerce Department said on Thursday. The gain, the equivalent of 33.1 percent on an annualized basis, was by far the biggest since reliable statistics began after World War II; the previous record was a 3.9 percent quarterly increase in 1950.
Still, the economy in the third quarter remained 3.5 percent smaller than at the end of 2019, before the pandemic began. By comparison, G.D.P. shrank 4 percent over the entire year and a half of the Great Recession a decade ago.
The report was the last major piece of economic data before the presidential election on Tuesday. President Trump hailed the big gain as evidence that the economy had roared back to life after the spring’s pandemic-induced shutdowns.
But economists said the third-quarter figures revealed less about the strength of the recovery than about the severity of the collapse that preceded it.
G.D.P. fell 1.3 percent in the first quarter and 9 percent in the second as the pandemic forced widespread business closures. A big rebound was inevitable once the economy began to reopen. The challenge is what comes next.
“The reason we had such a big bounce is that the economy went from closed to partially open,” said Michelle Meyer, head of U.S. economics at Bank of America. “The easy growth was exhausted, and now the hard work has to be done in terms of fully healing.”
Already, there are signs that the recovery is losing steam. Industrial production fell in September and job growth has cooled, even as a growing list of major corporations have announced new rounds of large-scale layoffs and furloughs.
Most economists expect the slowdown to worsen in the final three months of the year as virus cases rise and federal aid to households and businesses fades.
“We’re having a record recovery, but it comes after an even more record collapse, and it looks like economic momentum is fading in the fourth quarter,” said Jim O’Sullivan, chief U.S. macro strategist for TD Securities.
After two record-setting quarters — one down, one up — economic growth at the end of the year will probably look comparatively normal. That’s not a good thing.
The big rebound in gross domestic product in the third quarter means economic output is about two-thirds of the way back to where it was before the pandemic began.
A similar gain in the fourth quarter would not just fill in the gap, it would put the United States more or less back on its pre-pandemic growth path.
There is virtually no chance of that. Monthly data on jobs, consumer spending and industrial output all show that progress slowed significantly over the course of the third quarter.
With federal aid drying up and coronavirus cases rising again, most economists expect the slowdown to continue or worsen in the last three months of the year.
Forecasts for the next G.D.P. report are highly uncertain this early in the quarter — even the third-quarter figures are still preliminary. But most forecasters expect growth to slow to 1 to 1.5 percent (4 to 5 percent on an annual basis). That would leave the economy about 2.5 percent smaller than before the pandemic.
A 2.5 percent contraction would be the equivalent of a relatively typical recession — smaller than the Great Recession a decade ago, but substantially worse than the mild downturns of the early 1990s and 2000s.
“We’re no longer in unprecedented territory, but this is still a deep gash in our economy,” said Tara Sinclair, a George Washington University economist who studies recessions.
What is troubling, Ms. Sinclair said, is that after the initial bounce, the economy appears to be falling into a pattern that has become familiar in recent decades: a steep drop in a recession, followed by a painfully slow rebound. Congress’s failure to provide more stimulus spending, she said, makes a weak recovery more likely.
“Without any further support, it’s going to be a slog,” she said.