U.S. GDP Jumps 33.1% in Third Quarter After Record Contraction
Record Growth Isn’t Enough to Offset Losses During Shutdown
The U.S. economy expanded a record 33.1% in the third quarter, the government said Thursday, swinging back to growth after a stunning contraction in the preceding period.
The growth in gross domestic product was due to businesses reopening after closing during the second-quarter shutdown, according to the U.S. Bureau of Economic Analysis (BEA). Today’s “advance” estimate smashed the previous record for quarterly GDP growth of 16.4%, which was set in the third quarter of 1978. The highest annual growth rate was 18.9% in 1942.
The COVID-19 pandemic shocked the world’s economies in March, sending the U.S. economy into a recession marked by a record 31.4% contraction in the second quarter (Q2). The record growth of 33.1% only recovered about three-fourths of the prior decline, according to economist Scott Hoyt of Moody’s Analytics. In fact, despite the robust growth numbers in the estimate, the national economy still won’t have caught up to where it was at the end of 2019, Brookings economist Jay Shambaugh noted in a blog post earlier this week.
Expressed as an annualized rate, the number is the change in real GDP between the third quarter—July through September—and the previous three months of 2020. For comparison, here’s the quarterly change in GDP from 2007 to 2020:
Growth was driven by an increase in consumer spending, referred to as personal consumption expenditures (PCE) in the BEA report. It grew by 40.7% after falling 33.2% in Q2. By far, the largest increase within PCE occurred in durable goods, which rose 82.2% after falling just 1.7% in Q2. Durable goods are long-lasting things like automobiles, furniture, and large appliances.
Spending on non-durable goods, like groceries and gasoline, rose by 28.8% after a 15% drop in Q2. Consumers also flocked back to restaurants, hairdressers, and other service providers where sales rose 38.4% after a 41.8% drop in the prior quarter. This growth was supported by the $2 trillion CARES Act and other federal stimulus spending.
Business investment rose by 83%, after falling by 46.6% in Q2. Homebuilders saw a 59.3% increase as people moved to larger homes to accommodate work-from-home needs. Businesses started investing in equipment again. The category rose 70.1% in Q3.
Commercial construction, which is mostly apartment buildings, continued to decline. It fell by 14.6% after a 33.6% drop in Q2. The work-from-home trend also created vacancies in office buildings.
Exports regained ground, rising 59.7%. Most of this was goods, which increased by 104.5% after contracting 66.8% during the shutdown. Similarly, imports rose 107.9% as international trade returned to health.
An increase in exports increases GDP, while an increase in imports lowers GDP.
Federal government spending dropped by 6.2% as Congress failed to produce another round of stimulus spending. State and local government spending dropped 3.3%, after a worrying 5.4% drop in Q2. State and local governments cannot operate in the red like the federal government can, and must match spending with income from taxes and other sources.