The Commerce Department’s estimate of third-quarter growth showed that the nation has regained only about two-thirds of the output that was lost early this year when the eruption of coronavirus closed businesses and threw tens of millions out of work.
The economy is now weakening again and facing renewed threats, as confirmed virus cases are surging, hiring has sagged and federal stimulus has run out.
With no further federal aid in sight this year, Goldman Sachs has slashed its growth forecast for the current fourth quarter to a 3% annual rate from 6%.
Gregory Daco, chief US economist at Oxford Economics, noted that the record-high third quarter growth in the nation’s gross domestic product “tells us little, if anything, about momentum heading into” the current quarter.
Many of the jobs in retailing, leisure and airlines have been permanently lost.
“The strong GDP performance gives a false impression of the economy’s true health,” Mr Daco wrote in a research note.
“Much of the Q3 gain came from carry-over effects from fast progress in May-July… We anticipate a much slower second phase of the recovery, with output not reclaiming its pre-Covid level until late 2021.”
The latest GDP reading is the last major economic report before election day, after a campaign that President Donald Trump has sought to build around his economic record before the pandemic hit.
On Thursday, the government also reported that the number of Americans seeking unemployment benefits fell slightly last week to 751,000. That was the fewest weekly applications since March, but the level remains historically high and indicates that the pandemic is still forcing many employers to cut jobs.
Though the unemployment rate, at 7.9%, is down significantly from 14.7% at the start of the pandemic recession, it is still historically high, and hiring has slowed for three straight months.
The economy is still roughly 10.7 million jobs short of recovering all the 22 million jobs that were lost to the pandemic.
The government’s estimate of the third-quarter jump in GDP — the total output of goods and services in the United States — was the biggest such increase on records dating to 1947.
In the January-March quarter this year, GDP contracted at a 5% annual rate before a record-setting 31.4% annual tumble in the spring.
Mark Zandi, chief economist at Moody’s Analytics, said he thinks GDP will regain pre-pandemic levels by spring of next year, with GDP expanding 4.2% for 2021. But he warned that the job market might not fully recover until perhaps 2023.
“Many of the jobs in retailing, leisure and airlines have been permanently lost,” he said. “Those folks will have to find different work, and that will take time.”
The third quarter economic growth was powered by a record 40.7% annual increase in consumer spending. Americans began shopping again after the spring shutdown, which had sent consumer spending sinking by a record 31.4% annual rate. Consumer spending accounts for roughly two-thirds of economic activity.