23 November 2020

The United States Economy Bounces Back

After plunging by a record 31.4% on an annualized basis in the second quarter of this year, the United States economy rebounded in the third quarter, notching a record-high annualized GDP growth rate of 33.1%. On a year-on-year basis, the US economy shrank by 2.9% in the third quarter of 2020, following a 9.0% year-on-year contraction in the second quarter.

This was a slightly faster recovery than had been expected, as consumer spending, fixed investment and business inventory building are rebounded in the third quarter to boost overall economic growth in the world’s largest economy. These factors were the result of an easing of some of the restrictions that were put in place in an effort to slow the spread of the Covid-19 pandemic in the United States earlier in the year.

On the downside, government spending growth slowed sharply in the third quarter, due in large part to lower levels of funding for the Paycheck Protection Program. At the same time, the service sector remained hampered by Covid-19-related restrictions, shrinking by 7.2% on a year-on-year basis in the third quarter.

Looking ahead, there are concerns that the recent resurgence of the pandemic in the United States could slow this recovery in the fourth quarter of 2020, and perhaps into early 2021 as well. In addition, there is a good deal of uncertainty surrounding the political situation in the US, as the country prepares for one of the most divisive presidential elections in its history.


The Impact on the Election

United States President Donald Trump will hope that this positive economic news will provide a much-needed boost to his re-election campaign. However, with nearly half of the likely votes already cast, and with few undecided voters, it might come been too late.

A Relatively Strong Economy

While much has been made about the relative strengthening of China’s economy as a result of this crisis, the same might be said of the US economy when comparing its strength to that of other developed economies, many of which will struggle to recover.