U.S. GDP booms at 33.1% rate in Q3, better than expected
Coming off the worst quarter in history, the U.S. economy grew at its fastest pace ever in the third quarter as a nation battered by an unprecedented pandemic started to put itself back together, the Commerce Department reported Thursday.
Third-quarter gross domestic product, a measure of the total goods and services produced in the July-to-September period, expanded at a 33.1% annualized pace, according to the department’s initial estimate for the period.
Markets reacted positively to the news, with Wall Street opening flat to slightly positive.
Increased consumption along with sold gains in business and residential investment as well as exports fueled the third-quarter rebound. Decreases in government spending following the expiration of the CARES Act rescue funding subtracted from GDP.
Economy’s initial comeback was strong but spreading virus, no stimulus raise doubts about recovery
Some economists say real gross domestic product could return to its late 2019 level by spring, and others say without stimulus it may take even beyond next year.
“Although Q3 growth was truly impressive, recouping the remaining $700 billion of lost GDP will take quite a bit longer. We expect growth to slow to just 2% in Q4, with downside,” notes Jefferies chief economist Aneta Markowska.
Markowska said the economic rebound lost steam over the summer months, and it appears momentum carried over from May and June before slowing in July. “The outlook for Q4 is very shaky in our view,” she wrote, noting that the end of stimulus spending from Washington could stall consumption growth in the fourth quarter.
That could be offset by inventory rebuilding and strength in housing, but there are risks to the forecast should new Covid infections cause more school and business closings, she added.
Stephen Stanley, chief economist at Amherst Pierpont, said he is actually upping his fourth quarter growth forecast to 9% from 8.5%, after seeing the leaner than expected inventories and larger trade gap in the the third quarter.
“I’ve got GDP getting back to fourth quarter 2019 levels in the first quarter of 2021, but it very well could be the second quarter. That puts me a quarter or two ahead of most people,” he said.
Grant Thornton economist Diane Swonk said the only way GDP could return to its peak level before the end of next year would be with help from a large stimulus package.
“What’s unclear is how much a toll the surge in cases and hospitalizations will take on November and December,” said Swonk.
Swonk said she doesn’t expect GDP to return to its peak until the end of next year, but she does not expect the labor market to recover until 2023. Without stimulus, it would be 2024.
Reference: CNBC
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