Blowout US GDP Report Obscures Troubling Slowdown

After the worst downturn on record, the US economy posted a jaw-dropping annual rate of growth of 33.1 percent in the third quarter, but economists say the headline number obscures potential signs of trouble.

With days before the November 3 election, President Donald Trump will almost certainly seize on the data from the Commerce Department as proof the recovery he promised from the Covid-19 pandemic is underway.

But economists warn that the rebound in the July-September period, after the 31.4 percent drop in the second quarter, was driven by consumer spending supported by a massive US$3 trillion in government aid, much of which has since expired.

And even that bounce is not nearly strong enough to repair the damage and get the world's largest economy back to where it was pre-pandemic, or where it would have been if the expansion had continued at the same pace.

The gain is "not enough to get out of (the) hole," said Diane Swonk of Grant Thornton, and the prospects for the fourth quarter are "deteriorating by the day, without life boats."

The Commerce Department GDP figures, the first estimate of the results in the latest three months, are given at an annual rate - a measure of the full-year result if the gain was translated over 12 months.

If the results are weighed against the preceding three-month period, like most other advanced economies, US GDP rose a record 7.4 percent following the record 9.0 percent drop in the previous quarter.

Compared to the July-September stretch of 2019, the third quarter contracted 2.9 percent after falling 9.0 percent year-over-year in the second quarter, according to the data.

Despite millions of workers still jobless and coronavirus cases spiking, raising fears of renewed lockdowns in the United States as there have been in Europe, Washington policymakers have failed to agree on a new rescue package to help households and businesses weather the crisis.

"When your best is simply not enough," Gregory Daco of Oxford Economics said of the report. "The strong GDP performance gives a false impression of the economy's true health."

And the gain in the latest quarter was offset by a drop in government spending: federal government spending dropped 6.2 percent and state and local government fell 3.3 percent, according to the data.

David Wilcox, former director of the Federal Reserve's domestic economics division, said it would take a 53 percent gain just to get GDP back to where it was at the end of 2019, and a 64 percent surge to return to the trend growth rate.

Worse still, the momentum has weakened, he told reporters.

The gain was about double the next fastest on record from 1947, and "will be ballyhooed as a tremendous accomplishment," said Wilcox, now a senior fellow at the Peterson Institute for International Economics.

It represents the rebounding economy of May and June, but, "The pace of recovery has slowed dramatically in the last few months," he said, noting "there may have been little or no growth in activity in September."

And the big number says little about the quality of the recovery, who it is reaching, or how lasting it will prove to be.

Total US job losses in the early weeks of the pandemic hit 20 million, and only about half have returned, while major corporations have announced tens of thousands of layoffs in recent weeks - including another 7,000 from Boeing on Wednesday.

Meanwhile, the weekly tally of new applications for jobless benefits is only slowly coming down, dropping 40,000 to 751,000 in the week ended October 24, according to Labour Department figures released on Thursday.

And 22.7 million people were receiving some form of unemployment aid, including under special pandemic programmes, in the week ended October 10, hardly a sign of a healthy job market.

There have been increasingly urgent calls from the Federal Reserve and others for a new round of federal support aimed at individuals and state and local governments to prevent another wave of job losses and business closures.

But Trump resolutely opposes aid to Democratic-led states.

Wilcox said government aid "did a ton of good in putting a bunch of foam down on the runway," even while it didn't reach everybody.

"My fear there is that, millions, possibly tens of millions of households, I think, are coming to the end of their financial lifeline," he said. Without action "more of those households are going to be going over the financial cliff." (AFP)