US Economy Gained Ground in the Recovery of GDP in the 3rd Quarter

United States economy grew 7.4% in the third quarter of the year compared to the previous three months. The gain in quarterly gross domestic product, the value of all goods and services produced in the economy, helps offset a record drop in production earlier in the year when the virus and related shutdowns disrupted business activity across the country. The economy recovered in the third quarter when businesses reopened, employers restored many jobs, the government provided trillions of dollars of aid, and consumers resumed spending.

Fourth Quarter Predictions Look Positive

Forecasters expect the economy to expand during the fourth quarter, albeit more slowly, amid a pandemic that still affects lives and commerce as the virus infects tens of thousands of people a day. Analysts project that the economy will end 2020 less than a year earlier, but will grow in 2021.The Commerce Department’s GDP report provides the last major quantitative snapshot of the economy ahead of Tuesday’s presidential election. Both President Trump and Democratic presidential candidate Joe Biden have vowed to create millions of jobs and further heal the economy. “This is the quarter that captures the reopening of the economy,” said Tim Quinlan, an economist at Wells Fargo Securities, adding that, “it is a long way from indicating that everything is clear that the economy is in good shape here.”

A Severe Drop Followed by a Rapid Rebound

US GDP is typically reported at an annual rate, or as if the quarter’s growth rate continued for a full year. But the pandemic triggered extreme changes in production, a severe drop followed by a rapid rebound, making the annualized figures misleading. No one expects the second or third quarter numbers to continue for a full year. GDP contracted at an annual rate of 31.4% adjusted for inflation and seasonally in the second quarter, or just 9% from the previous quarter. The recovery is expected to slow down in the fourth quarter as the temporary jolt from the reopening of the economy and government stimulus fades, and unemployment is expected to remain high this winter. The October Wall Street Journal survey of economists found that more than half of those surveyed do not expect GDP to return to its pre-pandemic level until next year and for the economy to contract 3.6% this year measured from the fourth quarter of 2019. In September, the US has recovered approximately half of the 22 million jobs lost in March and April, at the beginning of the pandemic.

Quick Progress is Being Made

“We’ve had a lot of progress in a short period of time,” said Stephen Stanley, an economist at Amherst Pierpont Securities. He expects the United States to regain nearly two-thirds of the production it lost due to the pandemic in the third quarter. Still, “the idea that there will be winners and losers definitely holds,” he said, pointing to industries – and their workers – that continue to struggle with the effects of the pandemic, such as restaurants and other service sector companies. Recent data from the private sector shows that consumer spending remains below year-earlier levels, led by weaker spending on in-person services such as travel, entertainment and restaurants. JPMorgan Chase & Co.’s credit and debit card transaction tracker showed spending was down 5.1% from a year earlier in the week through Oct. 24.

Healthy Consumer Spending Equals Growth

Consumer spending accounts for more than two-thirds of US economic output, and economists expect it to drive growth in the third quarter. Consumers, especially those in higher-income households, purchased furniture, cars, computers, and home exercise equipment as many were working and staying close to home due to the pandemic. The housing sector has also boomed thanks to low mortgage rates and demand for larger living spaces. Business investment is likely to pick up in the third quarter as well, although expected weak spots include industrial and commercial construction amid a drop in transportation and energy costs. Business has prospered for Premium Service Brands, a home services franchise company based in Charlottesville, Virginia, Chief Executive Paul Flick said. Third-quarter revenue increased 44% from a year earlier, following an initial drop in business in March and April, when customers were reluctant to have work teams in their homes, he said.

Families are Cautiously Spending

In general, people are saving money, taking those savings and reinvesting it in their home. They don’t go to restaurants or travel. Christopher Boone, an auto industry data analyst in Westfield, Indiana, said that “at this point my spending is somewhat cautious, just because of the uncertainty in the markets” related to the pandemic and the elections. He and his wife, Nancy, recently bought a car and plan to travel to Florida this winter. He expects that the impact of the pandemic on his future expenses “will be collateral effects”, such as the availability of products. “Disruptions in supply chains are going to create shortages around the holiday season, I’m sure of that,” he said. “I think things are going to be hard to come by.”

The Restaurant Industry Still Hurting

Meanwhile, restaurants have faced continued weak demand and capacity constraints due to the coronavirus pandemic. Glenn Lunde, CEO of San Jose, California-based Togo’s Eateries LLC, which operates and franchises a chain of 183 sandwich restaurants, said the past few months have been “quite an adventure.” Sales were down 26% year-on-year in the second quarter and 8% in the third quarter. In September, sales fell 6% from the previous year. “I think everyone is worried about the increase in cases, where the virus will go, nobody really knows. The choice, the stimulus, there is a lot of uncertainty given all these unknowns, ”said Lunde.