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This is the second time a federal judge has issued an injunction …
U.S. economic output increased at the fastest pace on record last quarter as businesses began to reopen and customers returned to stores. But the economy has climbed only partway out of its pandemic-induced hole, and progress is slowing.
Gross domestic product grew 7.4 percent in the third quarter, the Commerce Department said Thursday. The gain, the equivalent of 33.1 percent on an annualized basis, was by far the biggest since reliable statistics began after World War II.
The rebound was fueled in part by trillions of dollars in federal assistance to households and businesses. That aid has since dried up, even as the recovery remains far from complete: The economy in the third quarter was 3.5 percent smaller than at the end of 2019, before the pandemic. By comparison, G.D.P. shrank 4 percent over the entire year and a half of the Great Recession a decade ago.
The report was the last major piece of economic data before the presidential election on Tuesday. President Trump’s campaign hailed the big gain as “absolute validation” of the administration’s policies, while the campaign of former Vice President Joseph R. Biden Jr. dismissed it as a “partial return” that was already fading.
2019 Q4 LEVEL
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2019 Q4 LEVEL
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Economists said the third-quarter figures revealed less about the strength of the recovery than about the severity of the collapse that preceded it. G.D.P. fell 1.3 percent in the first quarter and 9 percent in the second as the pandemic forced widespread business closures. A big rebound was inevitable once the economy began to reopen. The challenge is what comes next.
“The reason we had such a big bounce is that the economy went from closed to partially open,” said Michelle Meyer, head of U.S. economics at Bank of America. “The easy growth was exhausted, and now the hard work has to be done in terms of fully healing.”
There are signs that the recovery is losing steam. Industrial production fell in September, and job growth has cooled, even as a growing list of major corporations have announced new rounds of large-scale layoffs and furloughs. Most economists expect the slowdown to worsen in the final three months of the year as virus cases rise and federal assistance fades.
Forecasts for the next G.D.P. report are highly uncertain this early in the quarter. But most forecasters expect growth to slow to about 1 to 1.5 percent, with some economists anticipating even weaker results. That would leave the economy about 2.5 percent smaller than before the pandemic.
A 2.5 percent contraction would be the equivalent of a relatively typical recession — smaller than the Great Recession but substantially worse than the mild downturns of the early 1990s and 2000s.
“We’re no longer in unprecedented territory, but this is still a deep gash in our economy,” said Tara Sinclair, a George Washington University economist who studies recessions.
What is troubling, Ms. Sinclair said, is that after the initial bounce, the economy appears to be falling into a pattern that has become familiar in recent decades: a steep drop in a recession, followed by a painfully slow rebound. Congress’s failure to provide more stimulus money, she said, makes a weak recovery more likely.
“Without any further support, it’s going to be a slog,” she said.
Separate data released by the Labor Department on Thursday showed that 732,000 workers filed new claims for state unemployment benefits last week, a decrease of about 28,000 from the week before. New claims have fallen only gradually in recent weeks and remain extraordinarily high by historical standards. And millions of people who lost jobs earlier in the pandemic remain unemployed.
“We’re moving in the right direction, but not nearly as quickly as we need,” said AnnElizabeth Konkel, a labor market economist for the Indeed Hiring Lab. “We need to recover quicker so that we don’t have people transitioning to long-term unemployment.”
Laura Mayer was furloughed in March from her job as the general manager at Public House, a restaurant at Oracle Park, the San Francisco Giants’ baseball stadium. At the end of September, her furlough turned into a permanent layoff.
Federal aid helped Ms. Mayer, 56, get through the early months of the pandemic. She received $450 a week in state unemployment benefits, plus $600 a week in supplemental benefits from the federal government. Her partner, who had also lost his restaurant job, received benefits, too.
But the $600 supplement expired at the end of July, and Congress has failed to agree on a plan to replace it. Ms. Mayer’s state benefits ran out at the end of September — the same week her job loss turned permanent — and a 13-week federal extension will expire in December, leaving her with no income. Her partner, Steven Flamm, found a restaurant job in June, but at 25 hours a week, it isn’t enough to sustain them both.
“All that I’ve built my whole life just got wiped out,” Ms. Mayer said. “I just don’t know what my future is, and I think that’s the scariest part.”
The G.D.P. report released on Thursday doesn’t break down the data by race, sex or income. But other sources make clear that the pandemic has taken a disproportionate toll on low-wage workers, particularly on Black and Hispanic women. Those workers bore the brunt of the job losses early in the crisis and have continued to struggle. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.
Many white-collar professionals held on to their jobs and have been able to shore up their savings as they cut spending on vacations and restaurant meals during the pandemic. And while the stock market has fallen in recent days, it has recovered far more quickly than the economy as a whole.
“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”
Consumer spending drove the recovery in the third quarter, rising nearly 9 percent. But that rebound, too, has been uneven, with some sectors seeing big gains and others remaining all but shut down.
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Percent change in
from the last quarter
from the end
Percent change in consumer spending
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Consumer spending on goods last quarter rose sharply, nearly 10 percent, more than enough to offset a relatively mild 2.8 percent decline in the spring. Spending on durable goods was particularly strong as Americans rushed to buy cars, recreational vehicles and equipment for their new homebound lifestyles.
Spending on services, on the other hand, collapsed in the second quarter, falling 12.7 percent as consumers abandoned restaurant meals, gym classes and family vacations. Services spending rebounded 8.5 percent last quarter but remains 7.7 percent below its pre-pandemic level.
Two Wisconsin businesses illustrate the diverging paths of the two sectors.
When U.S. auto plants shut down last spring, it meant an immediate loss of business for Husco International, a manufacturer of hydraulic and electromechanical components for cars and other equipment. The company cut back production and furloughed many of its workers.
But by the end of May, car factories were humming again, and Husco’s business had begun to bounce back. In September, its automotive division had its best month on record.
Austin Ramirez, the company’s president and chief executive, said he still expected sales to be down about 10 percent for the full year. Despite September’s strong results, the pandemic and the economic weakness it has wrought are dragging down demand. And the virus is causing other complications, leading to more employee absences. But the damage to his business is not nearly as severe as in the recession a decade ago.
“In a cyclical business like ours, this has actually been a fairly mild recession that we’ve had tools to manage,” Mr. Ramirez said.
For Becky Cooper, it is a different story. Bounce Milwaukee, the family entertainment center that she owns with her husband, shut down in March and has yet to reopen. They experimented over the summer with selling takeout pizza and offering drive-in movies in the parking lot, but sales weren’t enough to offset costs.
The couple began the year dreaming up plans for what they would do once they paid off the Small Business Administration loan they used to open the business six years ago. Instead, they had to drain their bank accounts and take on more debt. Now, with Covid-19 cases spiking in Wisconsin, they don’t know when they will be able to welcome customers again — or whether they can hold out until then.
“I’m watching those numbers go up and just feeling so powerless,” Ms. Cooper said. “The beginning of March seems almost insanely optimistic to me, and I don’t see how much past that we could possibly go.”
Gillian Friedman and Jeanna Smialek contributed reporting.
The United States almost certainly just experienced its fastest three months of economic growth on record. That doesn’t mean the economy is strong.
The Commerce Department on Thursday will release its preliminary estimate of economic growth for the third quarter. Economists surveyed by FactSet expect it to show that gross domestic product — the broadest measure of goods and services produced in the United States — grew about 7 percent from the second quarter, or 30 percent on an annualized basis (more about that in a bit).
If those forecasts are even close to correct, it would represent the fastest growth since reliable records began after World War II. Until now, the best quarter was a 3.9 percent gain (16.7 percent annualized) in 1950.
This G.D.P. report will be particularly closely watched, arriving as the last major piece of economic data before Election Day next Tuesday.
But it doesn’t make sense to think about Thursday’s report in isolation. The third quarter’s record-setting growth is effectively an echo of the second quarter’s equally unprecedented contraction, when business shutdowns and stay-at-home orders led gross domestic product to fall by 9 percent. Strong growth was inevitable as the economy began to reopen.
While the economy has revived considerably since last spring, it is far short of its level before the pandemic. And progress is slowing.
“Employment has come back to some extent, but the unemployment rate is still high, wage and salary income is still low,” said Ben Herzon, executive director of IHS Markit, a forecasting firm. “Demand is still being depressed by the pandemic.”
In superlative-laden Facebook ads purchased days before the report, President Trump and his supporters have already begun to promote it as evidence of a strong rebound. The truth is more complicated. Here is how economists are thinking about the report, and why the numbers could be misleading.
The economy is still in a hole.
If G.D.P. fell by 9 percent in the second quarter, and rose by about 7 percent in the third quarter, it might sound as if the economy is almost back to where it started.
It isn’t. The big drop in output in the second quarter means that third-quarter growth is being measured against a smaller base. A simple illustration of the same phenomenon: If you have $100 and lose half, you have $50. If you then manage to increase your money by half, that will bring your holdings to $75, not all the way back to $100.
To really evaluate the recovery, it makes sense to focus less on quarter-to-quarter changes and instead look at how the economy compares to the fourth quarter of last year, before the pandemic began. If economists’ forecasts are correct, G.D.P. will be 3 to 4 percent lower in the third quarter than at the end of last year. By comparison, G.D.P. shrank 4 percent over the entire year and a half of the Great Recession a decade ago.
In other words: Even after the record-setting rebound in the third quarter, the economy is still in a hole as large as the worst point of many past recessions.
Most ‘third-quarter growth’ actually happened in the second quarter.
Here is where things get really confusing: Third-quarter growth will look historically strong, even though all three months that made up the quarter were relatively weak.
That seeming paradox is the result of how the government reports G.D.P. statistics.
Quarterly G.D.P. figures represent the average amount of economic output over a three-month period. In normal times, output changes only gradually — growing or shrinking only 2 or 3 percent per year — so the change from the first month of a quarter to the last is small.
Last spring, however, changes that would ordinarily take years played out in a matter of weeks. Monthly estimates from IHS Markit show that G.D.P. fell more than 5 percent in March and more than 10 percent in April, before rising roughly 5 percent in May and 6 percent in June.
Quarterly averages obscure those big swings, however. G.D.P. fell 1.3 percent in the first quarter (when two relatively normal months were followed by the big drop in March) and 9 percent in the second (when output plunged in the first month of the quarter then rose in the next two).
The big rebound in May and June meant that the third quarter effectively had a head start. In fact, even if there had been zero growth in July, August or September, and the economy had stayed exactly the same size as at the end of the second quarter, that would still represent 5.4 percent quarterly growth — the strongest gain on record.
Very little forecasted
change within Q3
Very little forecasted
change within Q3
Change in AVERAGE from
Of course, the economy did experience some growth during the third quarter. IHS Markit estimates that G.D.P. grew about 1.5 percent in July and less than 1 percent in August and September. But those are much weaker gains than the quarterly G.D.P. figures might seem to suggest.
“Statistics that we’re used to using for small and slow movements are basically broken when it comes to looking at large and rapid movements,” said Justin Wolfers, a University of Michigan economist who occasionally contributes to The New York Times. “Typically a recession plays out over many quarters. This one played out over many weeks. So looking at the data through the lens of quarterly data misses all the action.”
Annualized figures are even more misleading.
Gross domestic product in the United States is usually reported at an annual rate, meaning how much output would grow or shrink if that rate of change were sustained for a full year. That convention makes it easier to compare data collected over different time periods. But during periods of rapid change, annual rates can be confusing.
In the second quarter, for example, G.D.P. fell at an annual rate of 31.4 percent. That makes it sound as if the economy shrank by nearly one-third, when in fact it shrank by a bit less than a tenth.
To avoid confusion, in the coverage of Thursday’s report, The Times plans to emphasize simple, nonannual percentage changes from both the second quarter and the fourth quarter of last year, before the pandemic began. (We gave a more detailed explanation of this decision before the second-quarter report in July.)
Benchmarks make a big difference.
When the pandemic first hit last spring, many economists and policymakers hoped that by shutting down nonessential businesses and encouraging people to stay home, the United States could quickly bring the virus under control, then reopen with minimal lasting economic damage. That would allow for a “V-shaped” recession and recovery — a steep drop, followed by an equally steep rebound.
Relative to that expectation, the U.S. response has been a failure. The economy bounced back in May and June, but only partway. Most forecasters don’t expect G.D.P. to return to its pre-pandemic level until late next year at the earliest.
Compared with forecasts from April and May, however, the economic rebound has beaten expectations. The nonpartisan Congressional Budget Office, for example, released a forecast in late April showing a steeper second-quarter decline and a weaker third-quarter rebound than ended up happening. The office also expected the unemployment rate to stay above 10 percent through the end of this year; instead, the rate fell below that benchmark in August, and fell further to 7.9 percent in September.
The bad news is that progress has slowed sharply since that spring rebound. Many economists have recently revised downward their forecasts for the end of the year, in part because Congress did not provide more stimulus money before the election.
“The recovery has been faster than expected, but it is bending off pretty sharply,” Mr. Herzon said. “We got a sharp recovery, but there appears to have been a limit to that recovery.”