The Economy

U.S. GDP Surges by Record 33.1% in Q3

Economists are sticking to estimates of only 4% growth in the fourth quarter and a prolonged recovery from the coronavirus recession.
Matthew HellerOctober 29, 2020

The U.S. economy rebounded at a record pace from its worst quarter in history but economists believe a full recovery from the coronavirus recession is still a long way off.

The Commerce Department reported Thursday that gross domestic product grew at a 33.1% annualized rate in the third quarter as trillions of dollars in government aid drove a surge in consumer spending and business investment, two of the key pillars of the economy.

The gain followed the record 31.4% plunge in the second quarter and topped the 32% estimate from economists surveyed by Dow Jones.

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

CFO Insights on Inflation, Workforce Challenges, and Future Plans 

Download our 2022 survey report for a high-level view of finance team projections and strategies, directly from our executive readers.

But GDP growth was still 3.5% lower than its level at the end of 2019 and, with COVID-19 infections soaring around the country and Congress deadlocked over further fiscal support, economists are sticking to estimates of 4% growth in the fourth quarter and a prolonged recovery.

“We still don’t have the level of GDP surpassing the pre-COVID level until fourth-quarter 2021 and closing the output gap will take even more time,” Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Conn., told Reuters.

CNBC noted that nearly half the 22 million jobs lost in March and April remain unfilled and the unemployment rate remains at 7.9%, more than double its pre-pandemic level as 12.6 million Americans are still out of work.

“The stimulus programs that provided much of the economic lift last quarter have expired or are expiring,” said Eric Winograd, senior economist at AllianceBernstein. “Fiscal support is diminishing. That is part of the reason that the pace of growth is going to slow from here.”

The third-quarter rebound was fueled by a record 40.7% surge in consumer spending, which accounts for 68% of GDP. Business investment in equipment leaped 70.1% but, foreshadowing a slowdown in consumer spending, personal income tumbled at a $540.6 billion rate after surging at a $1.45 trillion pace in the prior quarter.

“The economy could suffer another relapse if states reimpose commercial restrictions and customers shun retailers, restaurants and other businesses that rely on large crowds to prosper,” MarketWatch warned.

4 Powerful Communication Strategies for Your Next Board Meeting