U.S. economic output grew at the fastest pace on record last quarter as businesses began to reopen and customers returned to stores. But the economy has climbed only partway out of its pandemic-induced hole, and progress is slowing.
Gross domestic product grew 7.4 percent in the third quarter, the Commerce Department said Thursday. The gain, the equivalent of 33.1 percent on an annualized basis, was by far the biggest since reliable statistics began after World War II; the previous record was a 3.9 percent quarterly increase in 1950.
Still, the economy in the third quarter remained 3.5 percent smaller than at the end of 2019, before the pandemic began. By comparison, G.D.P. shrank 4 percent over the entire year and a half of the Great Recession a decade ago.
The report was the last major piece of economic data before the presidential election on Tuesday. President Trump hailed the big gain as evidence that the economy had roared back to life after the spring’s pandemic-induced shutdowns.
But economists said the third-quarter figures revealed less about the strength of the recovery than about the severity of the collapse that preceded it. G.D.P. fell 1.3 percent in the first quarter and 9 percent in the second as the pandemic forced widespread business closures. A big rebound was inevitable once the economy began to reopen. The challenge is what comes next.
“The reason we had such a big bounce is that the economy went from closed to partially open,” said Michelle Meyer, head of U.S. economics at Bank of America. “The easy growth was exhausted, and now the hard work has to be done in terms of fully healing.”
Already, there are signs that the recovery is losing steam. Industrial production fell in September and job growth has cooled, even as a growing list of major corporations have announced new rounds of large-scale layoffs and furloughs. Most economists expect the slowdown to worsen in the final three months of the year as virus cases rise and federal aid to households and businesses fades.
“We’re having a record recovery, but it comes after an even more record collapse, and it looks like economic momentum is fading in the fourth quarter,” said Jim O’Sullivan, chief U.S. macro strategist for TD Securities.
After two record-setting quarters — one down, one up — economic growth at the end of the year will probably look comparatively normal. That’s not a good thing.
The big rebound in gross domestic product in the third quarter means economic output is about two-thirds of the way back to where it was before the pandemic began. A similar gain in the fourth quarter would not just fill in the gap, it would put the United States more or less back on its pre-pandemic growth path.
There is virtually no chance of that. Monthly data on jobs, consumer spending and industrial output all show that progress slowed significantly over the course of the third quarter. With federal aid drying up and coronavirus cases rising again, most economists expect the slowdown to continue or worsen in the last three months of the year.
Forecasts for the next G.D.P. report are highly uncertain this early in the quarter — even the third-quarter figures are still preliminary. But most forecasters expect growth to slow to 1 to 1.5 percent (4 to 5 percent on an annual basis). That would leave the economy about 2.5 percent smaller than before the pandemic.
A 2.5 percent contraction would be the equivalent of a relatively typical recession — smaller than the Great Recession a decade ago, but substantially worse than the mild downturns of the early 1990s and 2000s.
“We’re no longer in unprecedented territory, but this is still a deep gash in our economy,” said Tara Sinclair, a George Washington University economist who studies recessions.
What is troubling, Ms. Sinclair said, is that after the initial bounce, the economy appears to be falling into a pattern that has become familiar in recent decades: a steep drop in a recession, followed by a painfully slow rebound. Congress’s failure to provide more stimulus spending, she said, makes a weak recovery more likely.
“Without any further support, it’s going to be a slog,” she said.
As the U.S. economy rebounded in the third quarter, one sector played a big role: Motor vehicles and parts were selling rapidly, contributing to an overall bounce in durable good spending.
Americans bought $582 billion in automobiles and their components in the last quarter, stated in 2012 dollars, a 17 percent increase from the preceding three months. The category was the biggest single contributor to the growth in goods spending last quarter, based on a Bureau of Economic Analysis breakdown in its gross domestic product report released Thursday.
After falling sharply in the spring amid state and local lockdowns, demand for vehicles has risen as consumers avoided public transit, saved up money that they would otherwise spend on travel or at movies or bars, and shook up routines because of the coronavirus pandemic. Ford Motor on Wednesday reported a big jump in third-quarter profit as sales rebounded after the pandemic shut down dealerships and factories for about two months this spring.
The Federal Reserve’s policies may be helping to bolster the turnaround. The central bank cut interest rates to rock-bottom levels in March, and auto loan rates have edged lower. Yet there is a sharp divide in who can borrow money to buy cars.
“Auto loan balances increased solidly overall but declined for borrowers with low credit scores,” Fed staff members noted in minutes from the policymakers’ September meeting.
The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.
The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.
“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.
GDP number just announced. Biggest and Best in the History of our Country, and not even close. Next year will be FANTASTIC!!! However, Sleepy Joe Biden and his proposed record setting tax increase, would kill it all. So glad this great GDP number came out before November 3rd.
— Donald J. Trump (@realDonaldTrump) October 29, 2020
The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.
Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.
“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”
Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.
“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.
Under pressure from low oil and natural gas prices, Exxon Mobil said on Thursday it would cut 1,900 jobs through voluntary and involuntary layoffs in the United States in the next several months.
Exxon also said it is reducing the number of contractors it uses around the world by 14,000 over the next two years. These cuts follow large reductions by other oil and gas companies. On Wednesday, the company said it would maintain its dividend at its current level.
Exxon Mobil directly employs more than 70,000 people and said the new job cuts in the United States would primarily be in its Houston management office.
“These actions will improve the company’s long-term cost competitiveness and ensure the company manages through the current unprecedented market condition,” the company said in a statement that cited the drop in energy demand because of the pandemic. The U.S. benchmark oil futures contract was trading around $36 a barrel on Thursday, down from about $56 a barrel a year ago.
Exxon Mobil’s stock, which has dropped sharply this year, was up about 3 percent Thursday afternoon.
The pandemic didn’t just shrink the U.S. economy. It also reshaped it, at least temporarily — shutting down some industries almost entirely, while leading to a rise in demand in others.
Consumer spending on goods was up sharply last quarter, rising nearly 10 percent, more than enough to offset a relatively mild 2.8 percent decline in the spring. Spending on durable goods was particularly strong, as Americans rushed to buy cars, recreational vehicles and equipment for their new homebound lifestyles.
Spending on services, on the other hand, collapsed in the second quarter, falling 12.7 percent as consumers abandoned restaurant meals, gym classes and family vacations. Services spending rebounded 8.5 percent last quarter, but remains 7.7 percent below its pre-pandemic level.
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Two Wisconsin businesses illustrate the diverging paths of the two sectors.
When U.S. auto plants shut down last spring, it meant an immediate loss of business for Husco International, a manufacturer of hydraulic and electromechanical components for cars and other equipment. The company cut back production and furloughed many of its workers.
But by the end of May, car factories were humming again, and Husco’s business had begun to bounce back. In September, its automotive division had its best month on record.
Austin Ramirez, the company’s president and chief executive, said he still expected sales to be down about 10 percent for the full year. Despite September’s strong results, the pandemic and the economic weakness it has wrought are still dragging down demand. And the virus is causing other complications, leading to more employee absences. But the damage to his business is not nearly as severe as in the last recession a decade ago.
“In a cyclical business like ours, this has actually been a fairly mild recession that we’ve had tools to manage,” Mr. Ramirez said.
For Becky Cooper, it is a different story. Bounce Milwaukee, the family entertainment center that she owns with her husband, shut down in March and has yet to reopen. They experimented over the summer with selling takeout pizza and offering drive-in movies in the parking lot, but sales weren’t enough to offset costs.
The Coopers began the year dreaming up plans for what they would do once they paid off the Small Business Administration loan they used to open the business six years ago. Instead, they had to drain their bank accounts and take on more debt to get through the pandemic. Now, with coronavirus cases spiking in Wisconsin, they don’t know when they will be able to welcome customers again — or whether they can hold out until then.
“I’m watching those numbers go up and just feeling so powerless,” Ms. Cooper said. “The beginning of March seems almost insanely optimistic to me, and I don’t see how much past that we could possibly go.”
The main factor behind the big third-quarter rebound in U.S. economic output was growth in spending by consumers. Business investment played a major role too, and for similar reasons: Activity was all but halted during the spring lockdowns, then bounced back once the economy began to reopen.
But beyond those big drivers, details in the report help show how the pandemic has reshaped the economy, if only temporarily.
Residential construction, for example, grew 12.3 percent in the second quarter, the biggest gain on record, and is one of the few sectors doing better than before the pandemic. The housing market froze up briefly in the spring, but came roaring back, buoyed by record-low interest rates and demand from apartment dwellers looking for more space to ride out the pandemic.
At the same time, trade patterns have been scrambled by the pandemic — first by factory shutdowns in China that disrupted global supply chains, then by the steep drop in demand for goods and services as countries went into lockdown.
In the United States, imports have rebounded relatively quickly, as consumers have returned to buying goods made in China and elsewhere. But exports have been slower to recover, in part because the United States is a big exporter of services — visits from foreign tourists and students, for example — which have been slow to recover. The result is a widening of the U.S. trade deficit.
Government spending fell in the third quarter. That might seem surprising given the huge outlay of federal money to help consumers and businesses weather the crisis. But much of that spending counts as transfer payments, which don’t show up directly in G.D.P. (The spending that the money makes possible, however, is counted as consumption.) State and local governments have begun to slash spending in response to falling tax revenues.
Comcast, the nation’s largest cable operator and the owner of NBCUniversal, passed a milestone that highlights the broad shift happening across the media industry: It now has more streaming subscribers than cable-TV subscribers.
About 22 million people signed up to its Peacock service since it started in April, the company reported Thursday as part of its third-quarter results. That’s more than double the figure it reported at the end of July.
The company’s foundational business — cable TV — now has 19 million subscribers, a decline of 273,000 from the previous quarter. That’s not a surprise: The pay-TV industry has for years seen a steady drop, as customers cut the cord in favor of cheaper streaming.
Comcast reported overall revenue of $25.5 billion and profit of $2 billion, beating expectations.
Peacock, unlike Netflix or Disney+, is free and relies on a more traditional media model: advertising. That’s helped Comcast sign up new customers relatively quickly; it aims to reach 35 million by 2024.
The streaming platform is unlikely to be a moneymaker, but it does have has strategic value. Peacock is seen as a way to keep customers glued to broadband, Comcast’s most important business. The streamer is built into Comcast’s broadband-only offering and is relatively easy for cable television customers to use. Peacock recently signed a distribution agreement with Roku, which is available in about half of all households that have streaming devices.
Like other cable operators, Comcast has emphasized its internet service as it recognizes that pay television will become a smaller, less profitable arm of a bigger enterprise. The pandemic has only hastened that transformation. As the country went into lockdown, Comcast benefited even more from the growth in internet users and added 633,000 customers during the three months ending in September, the most it has picked up in a single quarter. It now has about 28 million broadband subscribers.
At NBCUniversal, the company continued to see falloff in both revenue and profit amid the pandemic. The shift in professional sports telecasts and the shutdown of movie theaters and theme parks has eaten into NBCUniversal’s revenue, which fell 19 percent to $6.7 billion. Movie studio sales declined by a quarter to $1.3 billion, and theme parks saw the biggest revenue drop, about 81 percent, to $311 million.
Even so, the company promoted its upfront presentation, where it sells advertising time to marketers ahead of the new season. Ratings have been down everywhere, but NBC said it was able to get higher ad rates.
Speaker Nancy Pelosi of California said on Thursday that she wanted to reach a deal on an economic relief bill during Congress’s lame duck session after the election in order to clear the decks for a Joseph R. Biden Jr. presidency, expressing optimism despite months of faltering negotiations.
“I want a bill for two reasons,” Ms. Pelosi said at her last news conference before the election. “First and foremost, the American people need help, they need real help. Second of all, we have plenty to do in a Joe Biden administration.”
The comments came hours after she wrote to Steven Mnuchin, the Treasury secretary, requesting a response to key differences in the stumbling talks as small businesses continue to struggle and millions of Americans remain out of work.
“Your responses are critical for our negotiations to continue,” Ms. Pelosi warned Mr. Mnuchin.
Hampering the deal are a list of outstanding issues, including Democrats’ demand for aid to state and local governments, the amount of funding for schools and child care and the terms of a national testing plan that Ms. Pelosi has long sought.
Despite Ms. Pelosi’s wishes, it remains unlikely that lawmakers and the administration will be able to quickly reconcile their differences, particularly given widespread conservative concern on Capitol Hill over the scope and size of the package.
Ms. Pelosi, however, continued to demand responses to a number of issues, insisting that Mr. Mnuchin, the lead negotiator for the White House, agree to final language and respond to a number of Democratic demands.
Ms. Pelosi said that Mr. Mnuchin had yet to agree to final testing language, despite the Treasury secretary declaring earlier this month that “we’ll fundamentally agree with their testing language.”
“The president’s words that ‘after the election, we will get the best stimulus package you have ever seen’ only have meaning if he can get Mitch McConnell to take his hand off the pause button and get Senate Republican chairmen moving toward agreement with their House counterparts,” Ms. Pelosi wrote, referring to Senate Republicans’ public objections to the nearly $2 trillion framework. Mr. McConnell, the majority leader, has privately counseled the White House to hold off agreeing to a deal until after the general election.
The number of workers newly filing for unemployment benefits dipped slightly last week, a sign that the country’s economic recovery remains fragile.
The Labor Department reported on Thursday that 732,000 workers filed new claims for unemployment benefits last week, a decrease of about 28,000 from the previous week.
New claims for Pandemic Unemployment Assistance, an emergency federal program that covers freelancers, part-timers and other workers who do not qualify for benefits under the regular unemployment system, were tallied at 360,000, up from 345,000.
On a seasonally adjusted basis, new state claims totaled 751,000.
For several weeks, new claims for state jobless benefits have totaled roughly 800,000 a week — much lower than the total during March and April after the pandemic struck, but extraordinarily high by historical standards.
“These are remarkably elevated levels of claims,” said Mark Hamrick, senior economic analyst for Bankrate.com. “There are huge cross sections of our society and sectors within it that are suffering.”
While new jobless claims are down, the number of people receiving assistance from Pandemic Emergency Unemployment Compensation — a federal program that provides 13 weeks of additional benefits after state unemployment insurance runs out — is rising, as millions of people who lost jobs early in the pandemic remain out of work more than six months later.
“We’re moving in the right direction but not nearly as quickly as we need,” said AnnElizabeth Konkel, a labor market economist for the Indeed Hiring Lab. “We need to recover quicker so that we don’t have people transitioning to long-term unemployment.”
Surges in coronavirus cases in the Midwest could foreshadow a fresh round of jobless claims in the coming weeks if states impose lockdowns or if people feel less comfortable shopping in stores or dining at restaurants, Ms. Konkel said. And as fall turns to winter, many businesses that have managed to stay afloat may be forced to close their doors.
“In warm weather, outdoor dining was a lifeline for many businesses,” said Julia Pollak, a labor economist at the career site ZipRecruiter. “Soon that will no longer be an option in many states, so we’re likely to see more layoffs.”
Stocks on Wall Street tried to regain their footing on Thursday, a day after the S&P 500 suffered its worst decline in more than four months.
The index swung from gains to losses and back again in early trading Thursday after falling 3.5 percent the day before, while the Stoxx Europe 600 was also volatile after it had dropped 3 percent on Wednesday.
Investors have been spooked by the rapid pickup in coronavirus cases in Europe and the United States, and new measures by governments to control the new wave of the pandemic. Both France and Germany announced new nationwide restrictions on Wednesday, shuttering hospitality and leisure businesses and asking people to stay at home through November.
The International Monetary Fund downgraded its forecast for the British economy on Thursday, saying G.D.P. would decline 10.4 percent this year and grow only 5.7 percent in 2021, a deeper contraction and slower recovery than it predicted three weeks ago. In that time, a second wave of coronavirus cases went from being a theoretical risk to a reality, as it sweeps across much of Europe. The I.M.F. said there was room for more fiscal and monetary stimulus in Britain.
The potential for a downturn in economic activity tied to efforts to slow the spread of the virus hammered the oil markets. Benchmark American crude oil prices were down more than 5 percent on Thursday, with a barrel of West Texas Intermediate crude hovering above $35 a barrel. Oil prices have dropped roughly 15 percent over the last seven trading sessions.
The renewed focus on the pandemic has added to an already turbulent stretch for traders on Wall Street, where expectations for imminent economic aid from Washington have been dashed and concern about the upcoming presidential election are keeping many investors on the sidelines.
As recently as Oct. 12, the S&P 500 was up more than 9 percent for the year, as investors seemed to grow more confident that Congress and the White House would be able to produce a new dose of federal stimulus before the election. The index’s annual gain has now shriveled to just 1.3 percent.
A report on U.S. gross domestic product data for the third quarter, released Thursday, showed the fastest quarterly increase on record but revealed an incomplete recovery, with the economy still several percentage points smaller than before the pandemic. G.D.P. grew 7.4 percent in the third quarter, the Commerce Department said. Weekly unemployment claims remained elevated at 732,000.
Airbus reported a consolidated operating loss of 636 million euros, or $745 million, in the third quarter, but the European aerospace giant managed to stop bleeding cash and expected continued stability after adjusting its business in response to the coronavirus crisis, the company said Thursday. Chief executive, Guillaume Faury, sounded a cautiously optimistic note about the company’s future at a news briefing, a day after its rival Boeing announced plans to slash another 7,000 jobs through the end of next year, building on a much larger cut announced this spring.
The European Central Bank left monetary policy unchanged following a meeting of its Governing Council on Thursday, but signaled it could take further steps to stimulate the eurozone economy in December. “In the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate,” the bank said in a statement.
Tiffany & Company said on Thursday that it has agreed to cut the price of its sale to the French conglomerate LVMH Moët Hennessy Louis Vuitton. The settlement would end a dispute between the companies and seal one of the luxury world’s largest deals. Tiffany and LVMH agreed to a revised price of $131.50 a share, down from $135. That would bring the sale to just under $16 billion, or about $400 million less than before. They also agreed to settle dueling lawsuits in a Delaware court.