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GDP rebounds at strongest pace on record in Q3

The economy grew at the fastest rate on record in the third quarter as lockdown measures to control the spread of Covid-19 eased notably from the tight restrictions implemented in Q2. According to an advance GDP estimate released by the Bureau of Economic Analysis, the economy expanded 33.1% in Q3 in seasonally-adjusted annualized terms (SAAR), slightly above expectations of 31.0%, after shrinking 31.4% in the previous quarter. In annual terms, GDP declined 2.9% in Q3, after plunging 9.0% in Q2.



Domestic demand led the rebound in the third quarter as businesses reopened and government stimulus cheques supported private consumption, which increased 40.7% SAAR (Q2: -33.2% SAAR). Moreover, business investment expanded significantly (Q3: +28.5% SAAR; Q2: -29.2% SAAR) on a sharp rise in equipment investment. That said, government consumption contracted in the third quarter, contrasting the previous quarter´s result (Q3: -4.5% SAAR; Q2: +2.5% SAAR).



Turning to the external sector, exports of goods and services jumped 59.7% in the third quarter (Q2: -64.4% SAAR), while imports of goods and services soared 91.1% (Q2: -54.1% SAAR). The external sector thus subtracted 3.1 percentage points from the headline figure (Q2: +0.6 percentage points).

Despite the stronger-than-expected rise in economic activity, James Knightley, chief economist at ING, noted:

“Even after today’s record growth figure, we need to remember that output is still 3.5% below that of the end of the fourth quarter 2019 and there are 10 million fewer Americans in work than in February. There is a long way to go until the economy has fully healed and there could be more economic pain ahead.”

Moreover, stalled stimulus talks and ongoing uncertainty around the outcome of the U.S. presidential elections will be clouding the outlook going forward. Nevertheless, the economy is expected to rebound robustly next year as the impact of the pandemic fades and the labor market improves.



Commenting on the outlook, Leslie Preston, a senior economist at TD Economics, noted:



“The biggest uncertainty for the continued recovery is the course of the pandemic. Until a vaccine (or ultra-rapid testing) is found, certain economic activity will remain restricted regardless of fiscal support. Still, maintaining the financial health of businesses and households through this period will require ongoing policy supports. Hopefully, once the election is past, Washington is able to provide further assistance to those whose livelihoods have been disrupted by the pandemic.”

FocusEconomics Consensus Forecast panelists see GDP growing 4.2% in 2021, which is up 0.5 percentage points from last month’s estimate, before growing 3.8% in 2022.