US 3Q GDP Growth of 33%: Sign of a Strong Economy?

(10 November 2020) In late October as the United States elections neared, the US Bureau of Economic Analysis (BEA) published its estimate for US 3Q real GDP growth - a jaw dropping 33.1 percent. While tempting to look on in awe at the scale and speed of the economic recovery, it may not represent what you think.

• This figure—33%—is an annual growth rate for the entire rolling year through Q3 2021 and assumes that the quarter-over quarter growth will remain the same for the next three quarters. A glance at the first chart below shows the scale of this fluctuation from -31.4% in Q2 to 33.1% in Q3 in the context of all reported figures since 1947.
• A potentially more intuitive figure and certainly one that is used more commonly outside the United States is year-over-year percent change. On a year-over-year basis US GDP decreased 2.9 percent in Q3 2020, which means that for the July-September 2020 period US GDP was 2.9 percent lower than in the same period of 2019. In other words, US economic output is lower now than it was in the pre-COVID period.

You may be wondering, 'Okay, well, how strong is the US economic recovery?" Relatively speaking, if we look at the world's two largest economies—China and the United States—the US is lagging. Whereas China's economy took a single quarter to return to positive year-over-year growth after the COVID shock, the US is looking at two or even three quarters to recover, assuming the fresh spike in COVID cases does not further derail recovery. In Q3 2020, US GDP was still 3.5 percent lower than in Q4 2019; in contrast, in Q3 2020, China's GDP exceeded the Q4 2019 level by 3.3 percent.