- Record GDP growth in the third quarter of 2020 reflects increased consumer spending and other positive signs of an economic recovery
- Surge in consumer spending and healthy investment in business and residential services helps fuel growth
- GDP remains below pre-pandemic levels, with some troubling signs such as rising COVID-19 cases and a slowdown in hiring
Gross domestic product in the United States saw a record surge during the third quarter of 2020 as businesses and consumer habits saw some return to normalcy following the start of the COVID-19 outbreak in the spring. However, GDP remained below pre-pandemic levels and economists noted some troubling signs that could point to a slowdown in economic recovery at the end of the year.
GDP grew 33.1 percent on an annual basis, and was also up 7.4 percent from the second quarter of the year. The boom in output follows a precipitous 31.4 percent drop in GDP in the second quarter.
Consumer spending accounts for about two-thirds of GDP, and this component saw a 40.7 percent increase as Americans returned to stores and potentially heeded retailers’ calls to start holiday shopping early. Business and residential investment also improved, as did exports.
However, economists tempered optimism on the news by noting several signs of a weaker recovery. GDP remains 3.5 percent below the pre-pandemic height at the end of 2019, and the economy has only recovered about two-thirds of the economic output and half of the jobs lost during COVID-19. Economists have downgraded their forecasts for the fourth quarter of 2020 as increasing COVID-19 cases raise the possibility of further business restrictions or lockdowns, several companies announce large-scale layoffs or slow their hiring, and federal stimulus continues to face delays in Congress.
Weekly jobless claims for the week ending Oct. 24 fell to 751,000, again hitting a new low since the start of the pandemic. There are concerns that these claims could increase due to the new wave of virus infections, and that more people may be facing long-term unemployment.
Several industries, including retail, restaurants, and travel, have been severely impacted by the pandemic. Personal incomes were down in the third quarter, and savings rates remained robust but also fell. Mark Zandi, chief economist for Moody’s, says the GDP will likely reach pre-pandemic levels in the spring but that the labor market may not recover until 2023.
