Even a 35% gain on an annualized basis in third quarter GDP growth – although it is at an all time high – would not bring the US economy back to its level at the end of the first quarter. And it would take a much bigger leap to bring the economy back to where it would have been had Covid-19 not criticized the country at all.
Wall Street economists and analysts now expect much slower growth in the fourth quarter and early next year than they expected, given that the estimated $ 4 trillion in federal spending stimulus that supported consumers and businesses until the end of the summer have largely faded.
Thursday’s numbers, if taken out of context, won’t tell us anything about the way forward. The surge in new cases of the virus is already leading to more restrictions on business that could further hurt the economy. Restaurant and travel activity is down again after rebounding earlier this year. A permanent change in consumer behavior could also hold back the further recovery.
Trump, who has repeatedly mentioned that he will get that big GDP figure right before the election, will almost certainly brag that he is the best in history. And it almost certainly will be.
But it will also follow the equally historic fall of 31% in the second quarter. As the third quarter started from such a low base, even a slightly larger increase than the 31% decline would not bring economic activity back to where it was at the end of the first quarter.
“From a numbers standpoint, you would need 46% growth in the third quarter just to get back to where we were at,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. Bringing the economy back to where it would have been without Covid-19 would have taken a 63% gain in the third quarter.
“To take a closer look, what these numbers tell you is that fiscal policy is working,” Shepherdson said. “The federal government borrowed a ton of money and sent it to individuals and businesses and it worked. Now we don’t have those things, and growth is expected to be much weaker in Q4 and the picture of the virus is already much worse. We risk falling back into a deep hole. “
Trump faces another conundrum over the employment numbers. It regularly boasts of record job creation – over 11 million in recent months. And these are, in fact, record numbers. But they followed a record loss of more than 22 million jobs during the early stages of the Covid crisis. The United States is only halfway to reclaiming all of these jobs. And by bragging about the numbers, Trump risks appearing out of touch with the more than 23 million Americans who still receive some form of unemployment assistance.
This problem is reflected in Trump’s approval numbers on the economy, once a clear advantage. Democratic candidate Joe Biden erased that advantage and even took a very narrow lead on the economy as a question in the latest POLITICO / Morning Consult poll.
The numbers suggest voters aren’t swayed by hefty numbers that don’t reflect the reality many Americans face, especially those in the lower income brackets who can’t work from home. In many ways, the third quarter issue could be mostly a mirage.
“GDP is likely to get a lot of attention,” Beth Ann Bovino, chief US economist at S&P Global, said in a research note. “But while growth is welcome, we are still a long way from home. We need to recoup nearly 40% of the $ 1.85 trillion lost to return to pre-crisis GDP levels. “
Democrats are already preparing to rebut any Trump bragging about Thursday’s GDP figure.
“The main reason why the third quarter appears to be the best on record is that the second quarter was the worst on record,” said Representative Don Beyer (D-Va.), Vice Chairman of the Joint Economic Committee, in a statement. committee report Wednesday. “Current forecasts estimate that GDP will be significantly lower than it would have been had growth continued at a pre-pandemic pace.”