By Jeffry Bartash, MarketWatch
Perhaps no one in the country is as eager to the see the latest scorecard for the U.S. economy, known as GDP, than President Donald Trump. It’s likely to show a record surge in the third quarter just days before the 2020 election.
Gross domestic product — the sum of all goods and services produced by the economy — is forecast to leap by a 31.8% at an annualized pace in the third quarter, according to a MarketWatch survey of economists. That would easily be the biggest increase ever in modern times.
Trump has been touting the expected surge in GDP on the campaign trail, but it could come too late to help the president in a reelection battle in which he trails Democratic rival Joe Biden in the polls. The report won’t be published until next Thursday — just five days before the election— even as tens of millions of Americans have already voted.
The election aside, the GDP report will contain plenty of good news. It will show that consumer spending — the engine of the economy — roared back to life during the summer. In a big surprise, the auto and housing markets were also key contributors to growth.
Many buyers rushed to take advantage of record-low interest rates. Others fled from large cities with major coronavirus outbreaks to the relative safety of the suburbs and country, where cars are necessary to get around. Even in cities, many people bought used or new vehicles to get around limits on public transportation or to avoid taking the subway or bus.
A 30% spike in GDP would go a long way in making up for all the ground the economy lost in the spring, when the pandemic forced much of the U.S. to shut down. The economy shrank by a record 31.4% annual rate in the second quarter.
Yet the third-quarter surge won’t undo all the damage. The economy would still be about 3% smaller compared to the end of 2019, calculates Gus Faucher, chief economist of PNC Financial Services.
It might not sound like much, but that’s a pretty deep hole. How deep? The hole for the economy would still be almost as deep as it was at the worst stage of the severe 2007-2009 recession, one of the worst in modern times.
Nor will the performance in the third quarter tell us much about where the economy is headed in the final three months of the year. GDP is mostly a look in the rear-view mirror.
Faucher is among many economists who worries the recovery will flag without more fiscal stimulus from Washington. Extra unemployment benefits and subsidies for businesses most harmed by the pandemic expired in July and have not been renewed.
“The unemployment rate is still extremely elevated. We are still seeing major layoff announcements. Small and medium-sized businesses are gong to run into increasing difficulties,” Faucher told MarketWatch.
Michael Gregory, deputy chief economist at BMO Capital Markets, also expects a letdown in growth. Part of the slowdown simply reflects the natural rhythm of a business cycle in which growth tends to be strongest at the start of a recovery.