U.S. economic activity surged at a record clip for the July through September period, as an initial easing of virus-related lockdowns allowed business activity to return after a historic slump.
The Bureau of Economic Analysis released its advance print on third-quarter gross domestic product (GDP) at 8:30 a.m. ET on Thursday. Here were the main metrics from the report, compared to consensus estimates compiled by Bloomberg:
3Q GDP, annualized quarter-over-quarter: 33.1% vs. 32.0% expected, -31.4% in the second quarter
3Q Personal Consumption: 40.7% vs. 38.9% expected, -33.2% in the second quarter
3Q GDP Price Index: 3.6% vs. 2.9% expected, -1.8% in the second quarter
3Q Core Personal Consumption Expenditures, quarter-over-quarter: 3.5% vs. 4.0% expected, -0.8% in the second quarter
Prior to the pandemic period, the largest-ever quarterly rise in GDP had been a 16.7% annualized increase in 1950. The rise in third quarter 2020 economic activity was nearly twice that, with the record jump following the record 31.4% slide earlier this year.
The advance came primarily from strength in personal consumption, which comprises about two-thirds of domestic economic activity. Personal consumption rose a better than expected 40.7% in the third quarter on an annualized basis, after dropping 33.2% in the second.
That dynamic has been evident in the monthly retail sales report, which grew in each of the past five months ending in September. A boost from Washington’s first round of $1,200 stimulus checks and weekly $600 in augmented federal unemployment benefits still had a lingering effect on consumer spending at the beginning of the third quarter, helping keep expenditures on products robust even as spending on travel and other services stayed low.
While consumption led the gain in third-quarter GDP, gains were still broad-based across the economy, as the areas hardest hit earlier on during the pandemic rebounded. Residential investment added 2 percentage points to the headline jump in GDP after subtracting 1.6 percentage points in the second quarter, with a boom in housing market activity over the summer contributing to gains.
Nonresidential fixed investment also contributed positively to GDP as equipment spending by businesses improved, although structures investment subtracted from headline GDP. The yawning trade deficit also dragged on GDP by about 3.1 percentage points as imports outpaced exports, with the pandemic weighing heavily on global commerce. Government expenditures pulled down GDP by about 0.7 percentage points.
Still, even the record increase in GDP did not go far enough to bring U.S. output to pre-pandemic levels. GDP fell to a seasonally adjusted annual rate of $18.58 trillion in the third quarter this year (based on chained 2012 dollars), down from $19.24 trillion in the fourth quarter of 2019 before the pandemic began to take in effect on the domestic economy.
And as always, the quarterly U.S. GDP report served as a backwards-looking view of the state of the economy, especially now given the ever-changing landscape induced by the coronavirus pandemic. High-frequency data including weekly jobless claims figures have pointed to stubborn weakness in the labor market, with initial unemployment claims totaling a still-elevated 751,000 during the week ended Oct. 24.
A lack of another fiscal stimulus package out of Washington has also threatened to weigh on the pace of the economic recovery during the current quarter. And coronavirus cases remain high in the U.S. and Europe, raising the specter of further business restrictions to try and curb the spread.
“GDP growth is up today but with a new surge in coronavirus cases nationwide to the highest new cases seen to date, one has to ask how long will this economic recovery be able to stay on track and put the millions of jobless Americans back to work,” Chris Rupkey, chief financial economist for MUFG Union Bank, said in an email Thursday. “Earlier rounds of stimulus dollars from Washington ran out months ago and this puts a question mark over the sustainability of this economic expansion.”
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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