The names: An unhindered US economy grew at a record annual pace of 33.1% in the third quarter as it began to recover from the coronavirus outbreak, but the historic summer rebound has already abated and a new viral epidemic threatens to further stifle growth.
The widely anticipated recovery in gross domestic product, the official dashboard of the US economy, has received massive billions of dollars in government aid to families, the unemployed and businesses worst hit by the virus.
However, most of the aid has now expired and another rise in coronavirus cases across the country appears to have caused Americans to back down. The economy could suffer another slump if states reimpose trade restrictions and if customers avoid retailers, restaurants and other businesses that depend on large crowds to thrive.
President Trump has touted the rebound in GDP during the election campaign in an attempt to garner votes, but Democrats argue the economy is still in bad shape and a new approach is needed.
The GDP increase in the third quarter was in line with forecasts by 33% of economists polled by MarketWatch. In pre-market trading, US stocks should open slightly lower.
Lis:Why the record growth of the economy is not as strong as it looks
What happened: GDP is a kind of balance sheet of an economy that measures everything that contributes to growth. What the third quarter showed was a record rebound in consumer spending and a pickup in business investment, two of the main pillars of the economy.
Consumer spending has exploded from an annual clip of 40.7%, the government reported Thursday, almost double the previous record set shortly after World War II. This increase largely, but not entirely, offset a record decline in the second quarter.
Business investment in equipment, meanwhile, jumped 70.1% in the third quarter. Investment in new housing has also jumped nearly 60% as historically low interest rates spawned a surprising boom in home sales and construction.
The value of stored goods jumped $ 286 billion in the third quarter as companies ramped up production after allowing inventories to run extremely low at the start of the crisis.
The rebound in business investment is a good barometer because it indicates that businesses are more optimistic about the future, if not the current, path of economic growth.
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On the commercial side, spending on structures such as oil rigs and office buildings fell for the second quarter in a row. The pandemic has reduced demand for energy and raised questions about the future of office work with millions of people working from home.
After a spending explosion in the second quarter, the federal government also cut spending over the summer. Federal spending fell 6.2% and was subtracted from GDP. Local and public spending also fell.
A larger international trade deficit was another drag. US imports jumped at an annual rate of 91% as Americans devoted part of their government stimulus package to foreign products. Exports grew by a smaller but still exhilarating 60%, although they still have not returned to pre-crisis levels.
Inflation as measured by the Federal Reserve’s preferred PCE price index accelerated in the third quarter by an annual rate of 3.7%, but inflation in the United States is generally quite low.
See:MarketWatch Coronavirus Recovery Tracker
The big picture: Looking in the rearview mirror, the US economy rebounded dramatically in the third quarter and repaired much of the damage caused by lockdowns at the start of the pandemic, but not all of the damage.
The economy is still significantly smaller today compared to the end of 2019, and the viral recession has left many scars that are likely to become permanent.
At least 11 million people who had jobs before the pandemic, for example, remain without work. Many industries such as travel and tourism are barely hanging on. And a new spike in coronavirus cases threatens to reverse some of the progress.
Economists polled by MarketWatch had already forecast a much smaller 3.2% increase in GDP in the fourth quarter before the last outbreak. They could lower their forecasts even further if the situation worsens.
What do they say? “The initial recovery in GDP after the lifting of the first wave of lockdowns was stronger than expected,” said Chief Economist Paul Ashworth of Capital Economics. ” But with coronavirus infections reaching an all-time high in recent days and any additional fiscal stimulus unlikely to arrive before, at the earliest, the start of next year, further progress will be much slower.
Market reaction: Le Dow Jones Industrial Average DJIA,
et S&P 500 SPX,
were expected to open lower in Thursday trades. Stocks sank on Wednesday after some countries in Europe announced new restrictions amid a global spike in coronavirus cases.