Top-line growth of 33.1% in the third-quarter gross domestic product woefully overstates the impaired condition of the American economy that is still in need of robust fiscal support and monetary accommodation to close a prodigious gap between actual and potential growth.
An intensifying pandemic and probable lack of another round of fiscal aid this year will almost certainly dampen overall economic activity to close the year and to begin 2021.
A number of months ago, one would have expected this to be a major moment in the economic and policy affairs of the nation. Rather, it has been overrun by events on the ground, as a monumental second wave of the pandemic appears to be building, in addition to the uncertainty surrounding the election.
We expect growth to slow to 2.75% in the current quarter and 2.2% in the first quarter of 2021.
Accordingly, we expect growth to slow to 2.75% in the current quarter and 2.2% in the first quarter of 2021. Should the configuration of power in Washington change, then we will likely update that forecast on expectations of large and sustained fiscal aid next year.
While the 40.7% increase in household consumption and 83% jump in gross private investment point to underlying resilience in the economy, there is a long way back to full employment and full potential. In our estimation, it will be a number of years before that gap is closed and jobs become plentiful.
Claims that the economy is now in a super V-shaped recovery should be discarded amid a recognition that the low-hanging fruit of the early portion of the economic reopening has been picked and that the hard work of reconstruction and reconciliation await.
Inside the report, which was released by the Commerce Department on Thursday, a 45.4% increase in goods consumption, an 82.2% rise in spending on durables and a 38.4% jump in service activity were the major contributors to the out-of-this-world increase in household spending.
Business fixed investment climbed 28.5%, which was driven by a 70.1% increase in outlays on equipment. Investment in structures declined by 14.6% and the acquisition of intellectual property dropped by 1%. As expected, residential investment soared by 59.3%, and nonresidential investment increased by 20.3%.
Exports jumped by 59.7% and imports increased by 91.1%, while overall government consumption dropped by 4.5%. Federal outlays contracted by 6.2% and state and local spending fell by 3.3%. Change in private inventories declined by 0.04%.
Alternative measures of GDP implied a more modest rate of expansion, with real final sales increasing by 25.5% and final sales to domestic purchasers rising 29.2%. Gross domestic purchases increased at a 36.8% rate, while final sales to private domestic purchasers advanced at a 38.1% pace. Disposable personal income declined by 16.3%.
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