Eakinomics: Q3 GDP Report
Yesterday the Bureau of Economic Analysis (BEA) released the initial estimates
of growth in gross domestic product (GDP) for the 3rd quarter
(July-September) 2020. This is the first comprehensive look at the pace and
breadth of economic growth since the economy fell off the COVID cliff in the 2nd quarter,
with GDP falling by 9.0 percent or 31.4 percent at an annualized rate. The vast
majority of that decline was a sharp pullback in household spending; reduced
consumption of services contributed 22 percentage points of
the annual-rate decline.
As doubtless you will have heard by now, the 3rd quarter GDP
growth rate clocked in at 33.1 percent (annualized). That is a huge number, but
to put it in perspective it would have required a 45.8 percent rate in order to
offset the decline in the 2nd quarter. That 12 percentage point
gap is the reason to not overly celebrate the result; growth was good, but the
level of GDP remains below the recent peak and unemployment remains elevated.
Another way to see this point is that GDP is 2.9 percent below where it was in
the 3rd quarter of 2019. Until year-over-year growth rates turn
positive, the job of recovery remains unfinished.
Turning to the composition, the basic story is pretty simple. The
growth in GDP can be accounted for by household spending and accumulation of
inventories; business investment, residential investment, trade, and government
spending netted to essentially zero. Overall, household spending (personal
consumption expenditures, to be precise) grew at a 40.7 percent annual rate.
The composition shifted markedly, however. Durable goods purchases grew at a
Buzz Lightyear-esque rate of 82.2 percent, nondurables 28.8 percent, and
services 38.4 percent. Because, however, the 2nd quarter
decline was driven by reduced services consumption, it would have required a
71.8 percent rate for services to fully recover. People are spending, but it is
on “stuff” and not at restaurants, hotels, shows, and other activities that
have large interpersonal interactions. The durable goods number is so strong
that year-over-year growth is actually positive – 6.9 percent. National defense
outlays are the only other category that has grown compared to a year ago.
The bottom line is that the 3rd quarter grades out to “so far,
so good.” The real test is maintaining relatively rapid growth and getting
people back to work in the face of a resurgent virus as the nation turns the
corner to 2021.
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Monday, November 2, 2020
Q3 GDP Report
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