In this news, we discuss the Record U.S. third-quarter growth expected; healing from COVID-19 still a long way.
WASHINGTON (Reuters) – The US economy likely saw record third quarter growth as more than $ 3 trillion in federal pandemic relief spending fueled historic consumer spending, but deep scars from the recession COVID-19 could take a year or more to heal itself.
No one disputes that the Commerce Department’s Gross Domestic Product report on Thursday – one of the last major economic dashboards leading up to next week’s presidential election – will be one of the history books. Nonetheless, it will do little to alleviate the human tragedy inflicted by the coronavirus pandemic, with tens of millions of Americans still unemployed and more than 222,000 dead.
With five days before Election Day and behind in most national opinion polls, President Donald Trump is likely to take the dramatic rebound in GDP as a sign of recovery from the deepest drop in at least 73 years.
Even still, it will likely leave U.S. production some 4% below its level in the fourth quarter of 2019, a fact that Trump’s challenger Democrat Joe Biden will almost certainly point out with signs that the growth spurt is on the way. quickly out of breath.
“The estimated third quarter GDP growth figure will be dramatic and will have no effect on the elections,” said Christopher Way, associate professor of government at Cornell University. “It’s the economic performance of the first half of an election year that counts. For people who are still out of work or struggling to cut their savings after the stimulus ends, this will have little impact. “
Gross domestic product likely rebounded at an annualized rate of 31% in the last quarter, according to a Reuters survey of economists. It would be the fastest pace since the government began keeping records in 1947 and followed a historic rate of decline of 31.4% in the second quarter.
The expected surge in GDP growth could recover just over half of the 10.6% drop in output in the first half of the year. By comparison, the economy contracted 4% from peak to trough during the Great Recession of 2007-2009.
The bailout provided a lifeline for many businesses and the unemployed, boosting consumer spending, which alone would have accounted for around 80% of the increase in GDP.
But government funding has been exhausted without a deal for another round of relief in sight, and new cases of COVID-19 are on the rise across the country, placing restrictions on businesses like restaurants and bars. Just over half of the 22.2 million jobs lost during the pandemic have been recovered, and layoffs persist. The economy plunged into recession in February.
A separate Labor Department report on Thursday is expected to show 775,000 people applied for state unemployment benefits last week, according to a Reuters survey. Although claims fell from a record 6.867 million in March, they remain above their peak of 665,000 during the Great Recession.
About 23.2 million Americans were receiving unemployment benefits at the beginning of October, although many have exhausted their eligibility for state aid. Another budget package is expected after the elections or early next year.
“There is still a long way to go before we get back to where we were before the pandemic, possibly in late 2021,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “It assumes that we get an additional stimulus. Growth will slow until 2021 and recovery will become more difficult as some structural problems in the economy persist. “
Growth estimates for the fourth quarter are below 5%.
Consumer spending, which accounts for over two-thirds of the US economy, is expected to rebound at about 39% in the third quarter, driven by purchases of goods such as automobiles and electronics.
Spending was boosted by billions of dollars in government transfers, including a weekly unemployment benefit of $ 600 and a one-time check of $ 1,200 to households. But spending on services likely remained weak, which would leave consumer spending at least 3.5% below its fourth quarter level. Services like air travel remain depressed.
“We cannot underestimate the importance of government support for household incomes,” said James Knightley, chief international economist at ING New York. “The $ 1,200 checks and the increase in unemployment benefits meant that almost 70% of recipients were receiving more incomes than when they actually worked.
The shift towards spending on goods led to imports, which probably led to a widening of the trade deficit. However, some of the imports ended up in warehouses. The build-up of inventories has likely offset the effects of trade on GDP growth.
While a pickup in business investment is expected after the second quarter drop, economists believe the rebound would be temporary as demand for goods that don’t complement the lifestyle changes brought on by COVID-19 remains weak. The pandemic has also crushed oil prices, weighing on spending on non-residential structures like drilling gas and oil wells.
Boeing Co BA.N on Wednesday reported its fourth consecutive quarterly loss and said it now plans to cut some 30,000 jobs through buyouts, layoffs and attrition – nearly double what it initially had forecast – for a global workforce of around 130,000 by the end of 2021.
The housing market was probably another star player, thanks to historically low interest rates. But government spending was probably a drag, as transfers largely took place in the second quarter. Public spending has also likely been subject to cuts in state and local governments, whose finances have been crushed by the coronavirus.
Reporting by Lucia Mutikani; Editing by Dan Burns
Original © Thomson Reuters
Originally posted 2020-10-28 21:46:13.