US GDP Shows Largest Economic Expansion on Record, But the Recovery is Far From Complete
Statement by Erik Lundh
Senior Economist, The Conference Board
US Real Gross Domestic Product expanded by 33.1% (annualized) during the third quarter of 2020, following a 31.4% contraction in Q2. The Conference Board forecast was 34.6% and the consensus estimate was 32.0%. While this was the largest quarterly annualized jump in growth on record, the US economy remains 3.5% smaller than it was prior to the pandemic in Q4 2019.
According to the Bureau of Economic Analysis, personal consumption expenditures growth rose by 40.7% in Q3, with the majority of the strength coming from goods (45.4%), vs. services (38.4%). Meanwhile, investment also expanded, with non-residential investment growth increasing by 20.3% and residential investment growth by 59.3%. The rebound in imports (91.1%) outpaced export growth (59.7%), resulting in a trade deficit of $1 trillion – the largest deficit on record. Following a large drag in Q2, private inventories added 6% to headline growth in Q3. Finally, overall government spending fell 4.5%, with federal nondefense spending down 18.1%, and state and local down 3.3%.
Looking ahead, given the resurgence in new COVID-19 cases and the limited recovery in the labor market, it is unlikely that economic activity will significantly improve in Q4 2020. We anticipate incremental growth in the months ahead, but do not expect the US economy to return to pre-pandemic output levels until the second half of 2021.
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