US GDP rebounds in Sep quarter; still below pre-pandemic level

29 October 2020

Summary:  US GDP up 7.4% in September quarter; still 3.5% below pre-pandemic levels; large degree of spare capacity; personal consumption leads rebound; higher frequency data suggestive of slowing growth in recent months; GDP deflator up, back above zero.

 

US GDP growth slowed in the second quarter of 2019 before stabilising at about 0.5% per quarter.  At the same time, US bond yields suggested future growth rates would be below trend. The US Fed agreed and it reduced its federal funds range three times in the second half of 2019. Pandemic restrictions in the June quarter sent parts of the US economy into hibernation; the lifting of those same restrictions sparked a rapid recovery.

The US Commerce Department has now released September quarter “advance” GDP estimates and they indicate the US economy expanded by 7.4% or at an annualised growth rate of 33.1%. The figure was a little higher than the +7.2% (+32.0% annualised) which had been expected and in marked contrast with the June quarter’s 9.0% contraction.

“Even with the sharp rebound seen in Q3, the level of GDP remains 3.5% below pre-pandemic levels with a large degree of spare capacity remaining,” said NAB economist Tapas Strickland.

US GDP numbers are published in a manner which is different to most other countries; quarterly figures are compounded to give an annualised figure. In countries such as Australia and the UK, an annual figure is calculated by taking the latest number and comparing it with the figure from the same period in the previous year. The diagram above shows US GDP once it has been expressed in the normal manner, as well as the annualised figure.

Long-term US Treasury bond yields rose noticeably. By the end of the day, the 10-year Treasury bond yield had gained 6bps to 0.83% and the 30-year yield had increased by 5bps to 1.61%. The 2-year yield finished unchanged at 0.15%.

“Personal consumption led the rebound, up 40.7% in annualised terms. The growth numbers look impressive, and will in most countries that experienced massive COVID-related activity disruptions in Q2,” said ANZ economist Adelaide Timbrell. She expected the US recovery to be “much less clear from here, especially as the number of virus cases grows and there are near-term impediments to a fiscal deal.”