US economy rebounds by record 33.1% in Q3 after Covid-19 plunge

The figure topped economists' estimates for a 32 per cent increase.
The figure topped economists' estimates for a 32 per cent increase.PHOTO: AFP

WASHINGTON (BLOOMBERG, REUTERS) - US gross domestic product (GDP) for July to last month expanded at a 33.1 per cent annualised pace, after a 31.4 per cent plunge in the second quarter, the Commerce Department’s initial estimate showed on Thursday (Oct 29). This beat economists’ estimates for a 32 per cent increase.

The massive gain – the biggest since record-keeping started in 1947 – was driven by a surge in spending by consumers and businesses.

But economists warn that much of that was fuelled by the massive US$3 trillion (S$4.1 trillion) in government aid that flooded the economy in the early weeks of the pandemic.

Much of that funding to jobless workers and businesses has run out, and other data shows spending tapered off last month and the recovery is losing momentum.

Analysts caution that growth will be much more modest and choppy in months to come, especially as the spread of the virus gathers pace again and US lawmakers remain in an extended deadlock over a new stimulus package.

Moreover, there are still nearly 11 million fewer workers on payrolls than there were before the pandemic hit, and analysts say a full recovery in GDP is at least several quarters away.

Even with the outsize gain, GDP is 3.5 per cent below its pre-pandemic peak, and the virus will keep businesses and jobs depressed in sectors like travel and restaurants.

A separate report on Thursday showed applications for US state unemployment benefits fell more than forecast last week.

Initial jobless claims totalled 751,000 in the week ended last Saturday, down 40,000 from the prior week, Labour Department data showed. Economists called for 770,000 initial claims and 7.78 million continuing claims, according to the median estimates in Bloomberg surveys.

The figures, the last snapshot of the US labour market ahead of Tuesday’s election, underscore a further, yet gradual, recovery in the job market. 

Nonetheless, a renewed surge in coronavirus infections across the country and a deadlock over new fiscal stimulus threaten to limit further progress.

With just five days until election day, President Donald Trump will likely point to the latest figures as evidence of his ability to guide the American economy through the Covid-19 crisis. 

It is unclear, though, how much of an impact the upbeat figures may have on the election, especially given more than 76 million Americans have already cast their vote.

US stocks were mixed after trading opened on Thursday.  The S&P 500 edged higher by 0.2 per cent, as the economic data allayed some worries but advances were capped as the number of coronavirus cases continues to rise. The Dow Jones Industrial Average fell 38.97 points, or 0.15 per cent.

Wall Street had plunged on Wednesday amid concerns over Covid-19’s resurgence and its potential impact on the global economy.

Asian stock markets also fell yesterday but not as sharply on the sense that the region had Covid-19 more under control. 

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.6 per cent, while Singapore’s Straits Times Index dropped 1.3 per cent.