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US economy grows 7.4 % in Sept quarter after Covid-induced plunge

The figure topped economists' estimates for a 32% increase, which was already well above forecasts three months ago for an 18% gain

US economy | Coronavirus

Reade Pickert | Bloomberg 

The U.S. spends the most money on advertising in the world. Marketing and advertising spending in 2020 is projected to reach nearly $390 billion. Dan Mewing/Moment via Getty Images
Personal spending has fueled the surge in growth

The bounced back with a record yet temporary surge of growth in the third quarter as businesses reopened and stimulus cash powered consumer spending, reversing much of the collapse stemming from coronavirus-enforced lockdowns.

Just as the second-quarter plunge in output was the biggest in seven decades of data, so too was the third-quarter rebound: Gross domestic product grew 7.4%, a quarterly gain that equals an annualized pace of 33.1%, the Commerce Department’s initial estimate showed Thursday.

The figure topped economists’ estimates for a 32% increase, which was already well above forecasts three months ago for an 18% gain. Personal spending fueled the surge in growth, climbing an annualized 40.7%, also a record, while business investment and housing also posted strong increases.

While the report makes clear that the has found a solid footing for now, analysts caution that growth will be much more modest and choppy in months to come, especially as the spread of the virus gathers pace again and lawmakers remain in an extended deadlock over a new stimulus package.

Moreover, there are still nearly 11 million fewer workers on payrolls than there were before the pandemic hit, and analysts say a full recovery in GDP is at least several quarters away.

Even with the outsize gain, GDP is 3.5% below its pre-pandemic peak, and the virus will keep business and jobs depressed in sectors like travel and restaurants.

With just five days until Election Day, President Donald Trump will likely point to the latest figures as evidence of his ability to guide the American through the Covid-19 crisis. It’s unclear, though, how much of an impact the upbeat figures may have on the election, especially given more than 77 million Americans have already cast their vote.

What Bloomberg’s Economists Say...

“Much of the third-quarter strength was concentrated in the beginning of the period; a significant slowdown has emerged since then. Bloomberg Economics expects a weak patch through the first quarter -- driven by the impact of elevated Covid-19 transmission on behavior, and lapsed fiscal aid -- and a return to the pre-pandemic level of GDP in the fourth quarter of 2021.”

-- Andrew Husby, economist

Futures on the S&P 500 rose slightly after economic data Thursday morning. A separate report showed applications for U.S. state unemployment benefits fell more than forecast last week. The yield on 10-year Treasuries was little changed and the dollar rose.

The third-quarter rise spanned most categories. Residential investment jumped 59.3%, the fastest since 1983, reflecting a recent boom in the housing market, supported by record-low mortgage rates.

Business investment rose 20.3%, though that was driven by equipment, as structures and intellectual property both showed declines.

The rebuilding of inventories added 6.6 percentage points to the quarterly growth pace, and will likely continue to be a prop in the current quarter as companies add to stockpiles that were whittled down during lockdowns.

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First Published: Thu, October 29 2020. 18:27 IST