The US economy staged a record-setting rebound from the coronavirus crisis in the third quarter, the feds said Thursday — but there’s still a long way to go before the nation makes a full recovery.
Gross domestic product—the value of all goods and services produced across the economy—rose 7.4% in the third quarter from the prior quarter, or 33.1% at a seasonally and inflation-adjusted annual rate, the Commerce Department said on Thursday. The third quarter increase offset a good chunk of the record drop in output earlier in the year when the virus and related shutdowns disrupted business activity across the country.
But the recovery is not complete — last quarter’s GDP of $21.1 trillion was still about 2.7 percent below the $21.7 trillion recorded in the fourth quarter of last year before COVID-19 sparked the worst economic downturn since the Great Depression.
The economy rebounded in the third-quarter as businesses reopened, employers restored many jobs, as the US government provided trillions of dollars in aid and consumers resumed spending. That puts the economy about 3.5% smaller than at the end of last year, adjusted for inflation and seasonal fluctuations.
The path to a full rebound appears rocky — another nationwide surge in coronavirus infections and hospitalizations has raised fears that the lockdowns could return in parts of the US as they have in France and Germany.
Moreover, the stimulus measures that put cash in Americans’ pockets and helped shore up consumer spending have run dry with no new agreement in sight for a new spending package from Washington. To date, there are over 12 million workers who remain unemployed and layoffs have mounted in recent months as large corporations grapple with the lasting impact of the virus.
The Federal Reserve has pushed Congress to pass another stimulus bill and expects GDP to shrink by 3.7 percent this year following growth of 2.3 percent in 2019.
Christopher Way, associate professor of government at Cornell University, studies the political business cycle and focuses on the effects of electoral cycles and the desire of leaders to stay in power says that the lived experience matters the most as voters consider the economy, and shifts to GDP this late in the year are unlikely to change minds. “The figure for estimated GDP growth in the third quarter will be released five days before the election. It will be dramatic. It will be record-setting. It will be confusing. It will get large amounts of media coverage. And it will have absolutely zero effect on the election.
According to Way, “Economic performance does affect election outcomes. But there are three important things to note about the third-quarter growth figure. First, research shows that it is economic performance in the first half of an election year that matters. After mid-summer, the economy is ‘baked in’ as far as the election is concerned. Voters have formed their impression; late swings, whether upwards or downwards, have small effects. Second, with heightened partisanship, voters are adept at interpreting national aggregate figures through a partisan lens. Republicans will see positive signs in the figure, and Democrats will write it off as meaningless bounce-back following a record-setting decline in the second quarter. Few will change their views. Third, local economic pain that is personally experienced matters most. If national figures are out of sync with lived experiences, it is the personal experiences of self, family, and friends that prevail.
“For people who are still out of work or struggling with dwindling savings after the stimulus wears off, national figures will have little impact,” adds Way.
(complied with wire reports)