US economic growth shatters record at 33.1%, but fails to snap coronavirus recession
Getting back to ‘normal’ will help GDP recover: Kroszner
Former Federal Reserve Board of Governors member Randall Kroszner provides insight into economic recovery amid the coronavirus pandemic.
The U.S. economy grew at a record-shattering pace in the third quarter as businesses reopened from the coronavirus shutdown, but the nation remains in a deep hole from the COVID-induced recession.
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Gross domestic product, the broadest measure of goods and services produced across the economy, surged by 33.1% on an annualized basis in the three-month period from July through September, the Commerce Department said in its first reading of the data Thursday. The previous post-World War II record was a 16.7% increase in 1950.
Refinitiv economists expected the report to show the economy had expanded by 31%.
But the headline figure obscures the full picture: The economy contracted at an annual revised rate of 31.4% in the previous quarter, the sharpest decline in modern American history. Looking at the quarterly data, the nation's GDP grew 7.4% from the second to the third quarter, compared with a 9% decline between the first and second quarters.
The economy remains 3.5% smaller than compared to the end of 2019.
"The economy in the third quarter will still be far below what it was pre-COVID, so far below that the depth of the recession even after that record growth will still be as a deep as a very deep recession, like the 2008 recession," Justin Wolfers, a University of Michigan economist, told FOX Business.
The Commerce Department calculates the GDP on a quarter-over-quarter basis as if that level of growth were sustained for a full year; in times of huge swings up or down, it can exaggerate both the decline in growth and the subsequent rebound.
Because third-quarter growth is measured against second-quarter growth — a historically low baseline — any bounceback at all would generate huge growth. The U.S. economy came to a near standstill earlier this year to slow the spread of the novel coronavirus, which has infected more than 9 million Americans and killed over 227,000, the most in the world.
"Even though this quarter’s GDP came in relatively strong, we have to keep in mind that this grade comes on a big curve – this is really a benchmark against the drastic hole we started to climb out of in [the second quarter]," said Steve Rick, chief economist at CUNA Mutual Group.
Still, the Trump administration took a victory lap on the GDP figure, calling it an "absolute validation of President Trump's policies, which create jobs and opportunities for Americans in every corner of the country."
"The President built the world’s best economy once and he’s rapidly doing it again, proving that cutting taxes and reducing regulations and red tape clear the way for American ingenuity and our entrepreneurial spirit to thrive," Trump's 2020 communications director Tim Murtaugh said in a statement.
Third-quarter growth was spurred by a resurgence in consumer spending, which accounts for roughly two-thirds of the nation's GDP, as states eased shutdown measures over the summer and employers rehired their workers.
This is a developing story. Please check back for updates.
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