Historic Rebound in U.S. GDP Revised Higher

This summer’s economic rebound was even stronger than previously thought, data released Tuesday by the Commerce Department showed.

The economy grew at an annualized pace of 33.4 percent in the three-month period from July to September, the Commerce Department said. That is three-tenths of a percentage point higher than the previous estimate for the third quarter.

This is the government’s third estimate of GDP for the period and based on more complete source data than were available in the earlier estimates. The upward revision primarily reflected larger increases in personal consumption expenditures and nonresidential fixed investment, the Commerce Department said.

Economists had forecast the third estimate to be unchanged from the November reading.

The U.S. reports economic growth on an annualized basis, meaning the change in GDP is expressed as if the current pace continued for four quarters. Ordinarily, that conveys an accurate picture of the strength or weakness of the economy. But it can exaggerate the change when the economy gyrates violently, as it has this year. Most of the rest of the world reports GDP simply as the change from the previous quarter, without annualizing the figure. On this basis, the U.S. economy grew 8.2 percent in the third quarter.

Despite the historic rebound, the economy still shows scars from the pandemic and lockdowns. Economic output was 2.8 percent lower in the third quarter of 2020 than in the same period of 2019. Compared with the end of 2019, the economy is 3.5 percent smaller.

Personal consumption expenditures rose 41 percent, an upward revision from the 40.6 percent increase reported a month ago. This was driven higher in part by an increase in spending on services as the economy reopened. Health care, dining out, and hotels led the increase in services spending.

Spending on goods also rose, led higher by spending on clothing, footwear, and motor vehicles.

Private sector inventory investment rose due to an increase in retail trade inventories,  led by motor vehicle dealers. Exports primarily due to higher sales of automotive vehicles, engines, and parts as well as capital goods.

The U.S. economy has proven more resilient than many forecasters expected. Critics of President Trump frequently claimed, without evidence, that the economy had been hobbled by the alleged bungling of the response to the pandemic. Instead, the rebound looks much more like the “v-shaped recovery” Trump predicted.  Last week, the Federal Reserve revised its GDP forecast for the year to a decline of 2.4 percent from prior estimates of a 3.7 percent drop.

Some parts of the economy have seen particularly strong rebounds. Spending on goods is up 7.2 percent compared with a year ago, led by a 12.8 percent increase in durable goods spending. Investment in homes is also up 7.2 percent compared with a year ago.