The first estimate of third-quarter GDP growth far exceeded the reigning record for economic growth in a quarter—despite still onerous constraints on economic activities. The Bureau of Economic Analysis (BEA) estimated quarterly real growth of 7.4% over the second quarter, or 33.1% on a seasonally adjusted annualized rate, topping even bullish consensus forecasts. Meanwhile the Bureau of Labor Statistics last week reported that employers continue to add an impressive number of jobs—also topping estimates—even if the pace keeps dropping.
But my close review of the GDP report and supporting documents reveals some surprising details, both good and bad. Among my findings:
- The strong growth was fueled by massive government stimulus that accounted for 16.5% percent of all personal income during the second quarter and 9.3% in the third—and is now disappearing.
- Even after this historic growth, output remains 3.5% below its level at the end of last year—which alone would rank among the greatest economic contractions ever recorded.
- Economic growth has been slowing in recent weeks and fourth-quarter growth is certain to be much slower, particularly as COVID cases again surge and business restrictions return.
- However, downside risks will be mitigated by a huge spike in personal savings, which should enable consumers to keep spending this winter even absent further government stimulus.
You may read and download my analysis here.
Posted: by Andrew J. Nelson
