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US Q3 economy rebounds after sharp contraction
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IANS | 31 Oct, 2020
US economic activity grew at a record pace in the third quarter (Q3)
after a record decline amid COVID-19 shutdowns, recovering about
two-thirds of the ground lost in the first half of year.
With
surging cases and an uncertain prospect for more stimulus, the momentum
toward recovery is slowing. Analysts believe the economy will still see
contraction in 2020, Xinhua news agency reported on Friday.
US
real gross domestic product (GDP) in the third quarter expanded at an
annual rate of 33.1 per cent, with a quarterly growth rate of 7.4 per
cent, the Commerce Department reported Thursday.
Despite the
seemingly fast rebound, the US Q3 economy was still down by 2.9 per cent
compared with that of last year, according to the advance estimate
released by the department's Bureau of Economic Analysis (BEA).
Gregory
Daco, the chief US economist at Oxford Economics, said on Twitter that
the Q3 GDP is "record-breaking & meaningless at the same time."
Consumer
spending is 3.3 per cent down from the pre-pandemic level, and business
investment is 4.9 per cent lower, Daco noted. Exports are down by 15.3
per cent and imports down by 7.1 per cent.
He also noted that
federal government spending is up by 2.6 per cent from pre-pandemic
level, while state and local government spending is down 1.9 per cent.
Compared with the pre-pandemic peak in the fourth quarter of 2019, the US economy is about 3.5 per cent smaller.
The
rebound in the third quarter came after the economy plunged at a
revised annual rate of 31.4 per cent in the second quarter amid mounting
COVID-19 fallout, which has been the largest decline since the US
government began keeping records in 1947.
In the first quarter,
the US economy shrank at an annual rate of 5 per cent, signaling an end
to a decade-long economic expansion following the global financial
crisis.
The increase in real GDP in the third quarter reflected
increases in personal consumption expenditures (PCE), private inventory
investment, exports, nonresidential fixed investment, and residential
fixed investment, partly offset by decreases in federal government
spending and state and local government spending, the BEA report showed.
The
Q3 advance was driven by a "surge" in consumer spending led by the
demand for goods, and a "red-hot housing market" driven by fiscally
stimulated income growth and historically low interest rates, Daco said.
Jay
H. Bryson, chief economist at Wells Fargo Securities, noted that
consumer spending on goods has been "significantly stronger" than
spending on services because services often involve close interpersonal
contact.
Although real personal spending on durable and
non-durable goods have both surpassed their pre-COVID peaks, real
spending on services remains 7.7 per cent below its level in the fourth
quarter of 2019, Bryson wrote in an analysis.
Diane Swonk, chief
economist at Grant Thornton, a major accounting firm, said in a blog
that the bulk of the recovery in consumer spending occurred in May and
June as the economy reopened.
"Momentum slowed during the summer
when COVID cases and hospitalizations surged in the Sunbelt and much of
the aid provided to households by the CARES Act lapsed," Swonk said,
referring to the US $2-trillion relief package approved by Congress in
late March.
The extra 600-dollar weekly unemployment benefits
from the federal government, as well as some other relief measures in
the CARES Act, expired at the end of July, but Congress and the White
House remain deadlocked over the next round of fiscal support.
The
GDP data was released on the same day as the Labor Department reported
the number of initial jobless claims in the United States fell to
751,000 last week, marking the second time the number has dipped below
800,000 in the past 32 weeks.
The total number of people claiming
benefits in all programs -- state and federal combined -- for the week
ending Oct. 10 declined by 415,727, yet remained elevated at 22.65
million, indicating a slowing recovery in the labor market.
Economists,
as well as Federal Reserve officials, have repeatedly argued that more
fiscal relief is needed to sustain the economic recovery, warning of
dire consequences if further fiscal support is not provided in time.
US
House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin
recently held a few talks, but major differences remained. With Election
Day drawing close, it is unlikely for Congress to pass any relief
package before voting concludes.
"Without more stimulus, there will not be as much of a foundation to rebuild on, once the crisis passes," Swonk said.
Swonk
noted that prospects for growth in the fourth quarter are
deteriorating, as both consumers and businesses pull back when COVID-19
cases are surging.
The United States registered over 74,000 new
cases on Wednesday, setting a new high since the onset of the pandemic
in the country, according to the data of the US Centers for Disease
Control and Prevention updated on Thursday.
Altogether 41 states
are reporting at least 10 percent more cases compared to the week
before, according to a CNN report. As daily new cases skyrocket,
hospitalizations are rising, too, and deaths, which lag furthest behind
those other indicators, are ticking up.
Bryson said growth in the
fourth quarter is set to "slow sharply." The Wells Fargo Securities
Economics Group projected that real GDP will grow at an annualized rate
of 6.1 per cent in the fourth quarter.
"That said, we readily
acknowledge that growth in the fourth quarter may not reach that rate if
some restrictions need to be re-imposed in light of the recent
acceleration in COVID cases," Bryson said.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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