United States
  • Financial markets tumbled this week as worsening coronavirus caseloads fueled concerns about the global economic outlook. The S&P 500 is on track to end the week 6% below last week’s close.
  • The American economy rebounded sharply in the third quarter. Powered by consumer spending, real GDP increased at a 33.1% annualized rate, recovering two-thirds of the activity lost in the first half of the year.
  • Boosted by supplemental payments for lost wages, personal income rebounded by 0.9% in September. Personal spending accelerated by 1.4%, while the personal saving rate remained elevated at 14.3%.



U.S. – Economic Growth Resumes in Q3

Financial News- Tsunami of Second Wave in EuropeRisk-off sentiment prevailed this week as worsening coronavirus counts fueled concerns about the global economic outlook. Disappointing earning reports later added to these concerns and, as of writing, the S&P 500 is on track to end the week 6% lower.

New COVID-19 cases are continuing to surge around the globe (Chart 1). Fresh daily records have prompted authorities in France and Germany to impose new lockdowns, which will notably include a month-long shutdown of bars and restaurants. Likewise, new infections are rising to new heights stateside. The overall U.S. case count crossed the 9 million mark this week, while hospitalizations are reaching levels that were last seen in August.

On the economic front, this week saw the release of real GDP data for the third quarter. As widely expected, the American economy rebounded sharply in Q3 following one of the steepest contractions on record in Q2. Economic growth accelerated at a 33.1% annualized pace (Chart 2), recovering about two-thirds of the activity lost in the first half of the year. Overall, real GDP is still 3.5% below where it was at the end of 2019. The rebound was largely powered by consumer spending (+40.7%), which was itself spearheaded by an impressive jump in durable goods spending (+82.2%). Services spending rose more modestly (+38.4%).

The remarkable recovery in the U.S. housing market was also front and center in the GDP report. Residential investment grew by 59.3% on account of expectation-defying strength in the resale market, and is now 5.1% above its pre-pandemic level. Other major GDP components also saw considerable increases with the exception of government spending, which fell by 4.5%. State and local governments, whose revenues have plummeted during the pandemic, reduced their expenditures (-3.2%) for the second straight quarter. Employment within these entities has contracted by 6% since February.

Financial News- Real GDP Expectedly Rebounds in 2020Q3The spending recovery was also borne out in the September personal income and outlays report. Personal spending grew by 1.4% m/m, the fifth consecutive month of gains, while personal income rebounded by 0.9% following a pullback in the month prior. An increase in lost wages supplemental payments, which reflected the executive order to replace the expired Pandemic Unemployment Compensation program, provided a fillip.

All things considered, the extraordinary pace of growth in the third quarter is unlikely to be sustained. Indeed, the splurge in durable goods spending over the summer is unlikely to be repeated, while the resurgence in new cases is placing the upswing in services spending in jeopardy. The looming expiration of eviction moratoriums across the country constitutes an additional downside risk to the near-term outlook.

With the election only a few days away, the focus will soon move back to the next installment of fiscal support. At a time when the pandemic continues to upend the livelihoods of millions, the importance of additional government support is hard to understate. Here’s hoping that Washington is able to deliver on this front, sooner rather than later.


Johary Razafindratsita, Economist | 416-430-7126

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