U.S. GDP booms at 33.1% rate in Q3, better than expected

Coming off the worst quarter in history, the U.S. economy grew at its fastest pace ever in the third quarter as a nation battered by an unprecedented pandemic started to put itself back together, the Commerce Department reported Thursday. Third-quarter gross domestic product, a measure of the total goods and services produced in the July-to-September period, expanded at a 33.1% annualized pace, according to the department’s initial estimate for the period.

The gain came after a 31.4% plunge in the second quarter and was better than the 32% estimate from economists surveyed by Dow Jones. The previous post-World War II record was the 16.7% burst in the first quarter of 1950. Markets reacted positively to the news, with Wall Street erasing a loss at the open and turning mostly positive.

Increased consumption along with sold gains in business and residential investment as well as exports fueled the third-quarter rebound. Decreases in government spending following the expiration of the CARES Act rescue funding subtracted from GDP. The powerful growth pace came after states across the country shut down large swaths of activity in an effort to stem the spread of Covid-19, which the World Health Organization declared a pandemic on March 11.

While the news on Q3 was good for the $21.2 trillion economy, the U.S. faces a tougher road ahead as coronavirus cases increase and worries grow over the health and economic impacts. Nearly half the 22 million jobs lost in March and April remain unfilled and the unemployment rate remains at 7.9%, more than double its pre-pandemic level as 12.6 million Americans are still out of work.

Q3 growth came amid a resurgence in consumer activity, which accounts for 68% of GDP. Though most of the country remained in a cautious reopening, shoppers began returning to stores and the bar and restaurant industry entered the first tepid phase of resuming business despite restrictions on capacity.

Personal consumption increased 40.7%, while gross private domestic investment surged 83% amid a 59.3% increase on the residential side.

Economic activity was strong in the real estate sector, and consumer and business executive surveys showed that confidence has remained high despite virus-related setbacks.

Personal income fell sharply for the quarter as transfer payments from coronavirus relief efforts dissipated. Personal savings also declined but remained strong at a 15.8% rate, down from the record 25.7% in Q2.

The annualized measure represents how much GDP would grow over the course of a year at the current pace from the same level a year ago. In terms of raw percent change from a year earlier, the economy contracted 9% in the second quarter and 2.9% in Q3.

U.S. GDP booms at 33.1% rate in Q3, better than expected, CNBC, Oct 29