US economy reported record growth in the third quarter, but Covid-19 scars last – leading macroeconomic influencers

30 October 2020 (Last Updated October 30th, 2020 08:23)

US economy reported record growth in the third quarter, but Covid-19 scars last – leading macroeconomic influencers
Credit: Master1305, Shutterstock.com.

The US economy grew at a historic pace in the third quarter. However, experts believe that this could be temporary with dwindling government support, and the scars left behind by the Covid-19 recession are likely to take a year or more to heal.

Konstantina Beleli

Konstantina Beleli, an economist, shared an article on the US economy posting record growth in the third quarter, a direct result of the injection of $3 trillion as part of the pandemic relief package that drove consumer spending. However, experts believe that the health and economic damages caused by the Covid-19 crisis could take over a year for the country to recover.

The gross domestic product (GDP) surged at 7.4% on a year-on-year basis in the third quarter, after having dipped to a low of 9.0% from April to June this year. The Commerce Department, however, stated that the 33.1% annualised growth rate was not enough to ease the human tragedy caused by the global pandemic, with thousands of US citizens still unemployed and more dead.

Economists had predicted a 31% growth in GDP between July and September, as the economy slipped into recession in February. The government’s relief package has helped boost consumer spending which alone contributed 76.3% to the spike in GDP. However, depleting funds and uncertainties around a second round of rescue, swell in cases and restrictions on businesses, are indicative of a slow recovery from the pandemic.

Shane Oliver

Shane Oliver, an economist, shared a chart on Eurozone’s economic confidence. He tweeted that it remains unchanged at 90.9 in October. He further added that although the European Central Bank (ECB) was on hold, it will take definitive actions and measure all methods in the December meeting to back the loss in impetus in the recovery and the rise in coronavirus cases.

Therefore, more quantitative easing (QE) or relief packages will be made available by the central bank to boost economic activities through the purchase of government bonds or financial assets, along with cheap bank funding, he added.

Adam Tooze

Adam Tooze, a historian and professor, re-tweeted on the US economy having to grow at 4.5% annually starting from the fourth quarter of 2020 to return to normalcy by the end of 2022. Despite the massive surge in GDP of 7.4% in the third quarter, which is equal to a 33.1% annualised growth rate, the US economy had a long way to recovery, he added. The article shared by the influencer highlights that the US economy remains distressed and 3.5% worse off than it was towards the end of 2019.

The article however emphasises on a rapid drop in living standards, where the average American being 11% worse off in the second quarter and 5% worse off in the third quarter due to the growing pandemic.

The Bureau of Economic Analysis data further confirmed a huge gap in economic activity in the third quarter compared to the trend implied by 2017-2019 growth rate. However, the rebound in growth has been much faster than in the financial crisis, wherein the drop in GDP was further stained by a slow recovery. However, the danger still looms for the US economy, which is less likely to achieve the 4.5% annual growth rate amid high unemployment rates and erratic government support.

Claudia Sahm

Claudia Sahm, an economist, re-tweeted about a KPMG and Haver Analytics chart that highlighted the services component of GDP, which is far below recent range. She added that services consumption normally remains stable, while goods consumption falls during a recession. As a result, people do go out to meet their essential needs and run errands such visiting a dentist or getting a haircut.

On the contrary, the chart reveals that the coronavirus pandemic has led to a fall in services consumptions and a rise in goods consumption, she added.