U.S. Gross Domestic Product

U.S. Economy Rebounds In Third Quarter

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Investments in transportation equipment, such as auto manufacturing shown above, paced the overall supply-side of the economy.

U.S. economy bounces back on the strengh of consumer spending and business investment fueled in part by government stimulus.

U.S. economic growth surged to an annual rate of 33.1 percent in the third quarter of the year after plummeting 31.4 percent in the previous quarter due to lockdowns and shutdowns caused by the coronavirus pandemic, a remarkable recovery demonstrating the resilience of the world's largest economy.  In current dollar terms the U.S. economy is now worth $21.16 trillion.

As expected due to the stimulus, consumer spending played a major part in the rebound as personal consumption expenditures (CPE) rose 40.7% at an annualized rate from the previous quarter, the largest increase on record.  Overall, consumer spending contributed 25.27% to the U.S. economy in the third quarter with most of that coming from the service sector at 16.04%. 

The rebound in consumer spending was driven in large part by the record-setting $2.2 trillion stimulus bill signed by President Trump on March 27th.  "I imagine a number of economists were probably torn on how big of an impact the stimulus would have," said John Bassford, the editor of CreditPulse.  "It turns out it had a huge impact particularly in both goods and services."

The combination of an economic lockdown from the pandemic and the largest ever spending bill have created wild swings in the quarterly GDP results for the second and third quarters that are normally calculated at an annual rate from the previous quarter.  These results have basically offset each other leaving the first and final quarters to determine actual annual growth.

"Thirty-two percent down and 32 percent up leaves the economy about 10 percent short for the year," said Mark Gold, a former Moody's economist and economic advisor for CreditPulse.  "I don't think the fourth quarter will be flat, but I don't think it will be robust either."

A major factor in the consumer spending rise was a 1.9 percent surge in durable goods in September, according to the U.S. Census Bureau, more than three times the .5 percent predicted by analysts, according to a transportation trade publication.  The auto industry led the way thanks to favorable financing resulting from ultra-low interest rates. 

Healthcare spending helped lead the services sector as it contributed 7.61 percent to the services side of GDP offsetting the 7.59 percent decline in the second quarter.

The biggest increase in percentage terms came on the investment side as gross private domestic investment, which represents capital expenditures for both business and residential, vaulted 83 percent paced largely by a 70.1 percent increase in equipment investment.  Private investment was incredibly strong representing over one third of quarterly growth. 

The third quarter marked the first rise in the all-important supply-side of the economy since the third quarter of 2019 when private investment increased slightly at 1.8 percent (see nearby graph).  Investment spending has been particularly volatile during the four years of the Trump administration with sharp rises in the first two years and steady declines in the last two.