Blowout US economic growth in summer is already fading

WASHINGTON (AP) — Americans may feel whiplashed by a report yesterday on the economy’s growth this summer, when an explosive rebound followed an epic collapse.

The government will likely estimate that the economy grew faster on an annualised basis last quarter than in any such period since record-keeping began in 1947.

Just be forewarned – The sizzling pace won’t last.

The United States (US) economy is weakening and facing renewed threats. Confirmed viral cases are surging. Hiring has sagged. Government stimulus has run out. And even last quarter’s outsize growth will leave the economy far below its level before the pandemic struck in March.

“The strength of this figure is an optical illusion,” Economist at Oxford Economics Nancy Vanden Houten wrote in a research note. “Growth has since slowed, and we expect markedly weaker activity” in the October-December quarter and beyond.

In the last major report on the US economy before Election Day, economists have forecast that growth in the July-September quarter soared to a 31 per cent annual rate, according to data provider FactSet. That would follow a plunge of 31.4 per cent in the April-June period — by far the worst quarterly drop ever — when the eruption of the coronavirus closed businesses and threw tens of millions out of work.

If the analysts’ outlook proves roughly accurate, the economy, as of last quarter, will have recovered only a bit more than two-thirds of the output it lost to the pandemic recession.

The economy shrank at a five per cent annual rate in the first three months of the year.

Mathematically, a bounce-back that equals or even slightly exceeds an earlier drop doesn’t mean the economy has fully recovered. The reason is that the rebound comes off a smaller numerical base. To use a simple example: A drop from 100 to 70 is a 30 per cent fall. Yet a 30 per cent rebound from 70 gets you only back to 91. You’d need a 43 per cent gain to get back to 100.

There are deeper reasons, too, for viewing yesterday’s report on gross domestic product (GDP) with scepticism.

It reflects huge gains last quarter that resulted from simply re-opening many businesses after the virus had paralysed the economy in March and April.

Since August, the economic outlook has darkened as hiring has slowed. Consumers may spend warily during winter.