• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer
  • Canada
  • United Kingdom
  • Subscribe
  • facebook
  • instagram
  • RSS
  • RSMUS.com

The Real Economy Blog

Search

  • Economics
  • Technology
  • Consumer
  • Industrials
  • Finance
  • Real Estate
  • Health Care
  • Life Sciences
Home > Coronavirus > Third-quarter GDP preview: What we talk about when we talk about GDP

Third-quarter GDP preview: What we talk about when we talk about GDP

Oct. 27, 2020 by Joseph Brusuelas

  • email
  • Twitter
  • Facebook
  • Linkedin

Raymond Carver’s 1981 collection of short stories, “What We Talk About When We Talk About Love,” addressed the everyday lives of the working poor who are left to deal with financial problems, failed careers and shattered relationships.

We are forecasting a 35.5% increase in GDP at a seasonally adjusted annualized rate.

That is a fitting analogy for how we ought to discuss the third-quarter report on gross domestic product, which comes out Thursday and will almost certainly contain the greatest increase ever in top-line quarter-over-quarter growth.

We are forecasting a 35.5% increase at a seasonally adjusted annualized rate, but the report will illustrate an enormous gap between actual and potential output that will take some time to close.

It is not just the size of the rebound that should be of paramount interest. Rather, policymakers should focus on the size of the economic gap that has left small firms, and the poor and working class, struggling to keep up. The pandemic-induced economic shock has produced long-term economic scarring that requires well-designed, targeted and significant policy action to get the economy back to producing at full potential.

Even with a record rebound in GDP, it will take at least another two years before growth nears its potential.

Even with a record rebound in GDP, it will take at least another two years before policymakers can start talking about economic growth nearing its potential. And that prospect assumes that there is substantial policy aid, in contrast with the current impasse, which will almost surely define the remainder of the year.

For example, if one assumes a 30% increase in top-line growth (the Bloomberg consensus is 32%), that is equivalent to a 3.5% decline in the year’s overall rate, which is consistent with the median growth forecast put forward by the Federal Reserve. Based on our estimate, that will close a little more than half the output gap caused by the pandemic.

The gap and the rebound are both significantly larger than those observed during the financial crisis, and we expect that from here on in, the closing of the spread between real and actual output will slow considerably back toward growth rates at or near the long-term potential rate of just under 2%.

We expect top-line growth near 35.5% in the third-quarter estimate, which will be driven by a nearly 40% increase in household consumption. Also pushing the growth will be kinetic increases in outlays on fixed business investment and what will almost certainly be an upside surprise to inventory restocking as the economy reopened. It is clear from the data that spending on equipment surged in the quarter, and we will obtain more data on inventories and trade in the coming days that will help fill in the picture.

It is critical that these numbers be put in the context of the substantial output gap and the serious policy impasse in Washington that has left millions of poor and working class people out of work and facing the most sour holiday season in just about anyone’s memory.

For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.

  • email
  • Twitter
  • Facebook
  • Linkedin

Related posts

  • First-quarter GDP is revised downward to a 5% contraction

    A 10.5% decline in gross private investment was the primary driver of the downward revision to first-quarter gross domestic product to a 5% contraction, from a drop of 4.8%.

  • First-quarter GDP: Depression-like shock, no depression

    Depression-like shock, and no depression, are likely to be the mantras for policymakers following this morning’s 4.8% drop in U.S. first-quarter gross domestic product. That drop in output and the 7.6% decline in household consumption almost certainly understate…

  • GDP Q1 2019
    First quarter GDP will show moderate growth, but with an asterisk

    U.S. first quarter gross domestic product likely expanded 2.6 percent, a generous pace of growth given significant headwinds from a slowing global economy, the lengthy government shutdown and a rough winter. But put an asterisk next to it,…

Filed Under: Coronavirus, Economics Tagged With: coronavirus, Covid-19, GDP, gross domestic product, Joseph Brusuelas

About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

Primary Sidebar

Other Regions

  • Canada
  • United Kingdom

Categories

  • Economics
  • Technology
  • Consumer Products
  • Industrials
  • Financial Services
  • Real Estate
  • Health Care
  • Life Sciences

Recent Economics articles

  • CHART OF THE DAY: Institutional investors warm to digital assets Jan. 25, 2021
  • U.K. financial conditions, growth and the pandemic Jan. 25, 2021
  • FOMC preview: Addressing market rise in inflation expectations Jan. 25, 2021

RSMUS.com links

The Real Economy

Middle Market Business Index

MMBI Special Reports

Footer

  • Facebook
  • Instagram
  • RSS

About The Real Economy Blog

The Real Economy Blog from RSM US LLP was developed to provide timely economic insights about the middle market economy. It is offered as a complement to RSM’s macroeconomic thought leadership, including The Real Economy monthly publication and the proprietary RSM US Middle Market Business Index (MMBI).

© 2021 RSMUS.com | Privacy Policy | Cookie Policy

The Real Economy Blog
  • Economics
  • Technology
  • Consumer
  • Industrials
  • Finance
  • Real Estate
  • Health Care
  • Life Sciences