U.S. gross domestic product (GDP) growth surged in the third quarter of 2020, according to data out this morning from the Bureau of Economic Analysis. Specifically, real GDP, which measures the value of the production of goods and services in America adjusted for price changes (inflation), increased at an annual rate of 33.1 percent in Q3. That was a larger gain than expected and the biggest quarterly increase in history. The unprecedented gain is explained in part by a combination of favorable base effects and the trillions of dollars in relief transfer payments that have significantly supported household incomes throughout the COVID-19 crisis, and in turn helped fuel the rapid recovery in consumer spending (the largest component of GDP).
Compared to this same period last year, though, GDP is still down 2.9 percent, 3.5 percent below the Q4 2019 peak, and 4.9 percent below where it would have been currently if the pre-pandemic growth trend had continued, so there remains a lot of ground left to recoup. Quarterly growth will of course moderate from Q3’s record pace but the overall rebound for now still seems likely to continue into yearend and beyond. Exactly how fast the growth rate is going forward will depend on a handful of variables, such as what the scale of the next stimulus package working its way through Congress ultimately winds up being. Another thing that will help sustain growth in the year ahead is business investment, which began its recovery as soon as the lockdowns started to be lifted in May. There has been a slight slowdown in core capital expenditures and shipments recently but this is likely related to increased uncertainty as we near the election. After such event risk subsides capex growth should start to reaccelerate, as evidenced by the various surveys recently that have signaled a marked upswing in business investment plans (see below). All of this optimism of course also assumes that the latest resurgence in the coronavirus going on across the globe does not gain enough momentum to pressure policymakers into reinstating the lockdowns and other economically destructive restrictions.
Sources: Econoday, U.S. DoC, FRBSL