The U.S. is about to report the fastest quarterly growth on record after businesses reopened following pandemic shutdowns and consumers proved resilient.
But the headline number, like the record contraction preceding it, obscures key parts of the story.
Data due Thursday are forecast to show U.S. gross domestic product surged an annualized 32% in the third quarter, almost double the previous high. That figure will reflect activity switching back on across the country after Covid-19 fears and government stay-at-home orders ground the economy to a halt in April.
The eye-popping number, though, fails to capture the fact that the pace of growth has moderated significantly since early in the recovery. Overall economic activity will likely remain below its pre-pandemic level for some time, even though some sectors such as retail sales and housing have made comebacks.
In addition, the economy currently faces tough challenges including a fresh surge in new Covid-19 cases, rising long-term unemployment and a lack of additional government stimulus.
The report comes out five days before Election Day. While it’s unclear how much it will help President Donald Trump, especially since more than 69 million Americans have already voted, there’s a good chance Trump and his surrogates will highlight the GDP number as evidence of the president’s economic stewardship.
Here are some questions and answers about the report:
Does this mean GDP has fully recovered?
No. Bloomberg Economics estimates the outsize rebound will still leave the U.S. economy’s size almost 4% below its pre-crisis peak.
Michael Gapen, chief U.S. economist at Barclays Plc, doesn’t expect a full recovery in the level of GDP until the first quarter of 2022.
The headline number also overstates the actual change in economic output because it represents an annualized rate -- or what the quarterly change would be if it lasted a full year.
A 32% annualized growth rate would actually be derived from a quarterly increase of about 7.2%. That compares with a 9% decline in the second quarter -- or an annualized contraction of 31.4%.
Before the crisis, the economy was usually growing by a few tenths of a percentage point each quarter, resulting in an annualized pace typically ranging from 2% to 3%.