ANALYST WARNS: US COMMERCE DEPARTMENT'S GLOWING REPORT DOESN’T SUFFICE
The Commerce Department released its initial estimate of economic growth for the third quarter, and it showed that the economy grew at its fastest rates since reliable records began after World War II. But that doesn’t mean the economy has recovered from its collapse earlier this year, and it’s important to know why.
The New York Times’s Ben Casselman broke down the key elements of the report. Here are some of the key factors to consider: The numbers will certainly show the economy rebounding. Economists surveyed by FactSet expect that gross domestic product — the broadest measure of goods and services produced in the United States — grew about 7 percent from the second quarter, or 30 percent on an annualized basis.
“It doesn’t make sense to consider Thursday’s report in isolation. The third quarter’s record-setting growth is effectively an echo of the second quarter’s equally unprecedented contraction, when business shutdowns and stay-at-home orders led gross domestic product to fall by 9 percent. Strong growth was inevitable as the economy began to reopen. The economy is still in a hole. If GDP fell by 9 percent in the second quarter and rose by about 7 percent in the third quarter, the economy is not almost back to where it started. The big drop in output in the second quarter means that third-quarter growth is being measured against a smaller base, and the economy is still 3 to 4 percent smaller than it was before the pandemic. (For comparison, the economy shrank 4 percent during the entire Great Recession a decade ago),” Casselman wrote.
Annualized figures are even more misleading. Gross domestic product in the United States is usually reported at an annual rate, meaning how much output would grow or shrink if that rate of change were sustained for a full year. But during periods of rapid change, annual rates can be confusing. In the second quarter, for example, GDP fell at an annual rate of 31.4 percent. That makes it sound as if the economy shrank by nearly one-third, when in fact it shrank by a bit less than a tenth.To avoid confusion, The Times plans to emphasize simple, nonannual percentage changes from both the second quarter and the fourth quarter of last year, before the pandemic began.