The U.S. economy rose at the fastest rate on record in the third quarter of 2020 as the economy recovery took hold. Real GDP in the third quarter was close to the pre-recession level, but further recovery is needed.
According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 33.1% in the third quarter of 2020, following two consecutive decreases in the first quarter (-5.0%) and the second quarter (-31.4%). This quarter’s rate marked the fastest growth rate on record since the quarterly GDP data first was tracked in 1947 and was above NAHB’s forecast of a 25.6% increase.
The COVID-19 recession is singular. In the second quarter of 2020, national shutdowns and restrictions plunged the U.S. economy into the worst recession since World War II. In the following quarter, from July to September, reopening economic activities strengthened the U.S. economy significantly and real GDP grew at an unprecedented pace. However, the recovery remains incomplete, with additional gains challenged as the COVID-19 cases increase and uncertainty grows over health, policy and economic factors.
The increase in real GDP in the third quarter of 2020 reflected increases in personal consumption expenditures (PCE), which alone accounts for about 70 percent of the overall economy, private inventory investment, nonresidential fixed investment, residential fixed investment and exports. Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 40.7%. The increase in consumer spending reflected increases in both services and goods. Goods spending increased 45.4% at an annual rate, led by motor vehicles and parts (+87.1%) as well as clothing and footwear (+161.3%). Expenditures on services increased 38.4% at an annual rate, mainly reflecting increases in recreation services (+276.6%), food services and accommodation (+209.9%), transportation services (+173.2%) and health care (+93.7%).
While nonresidential fixed investment rose 20.3%, residential fixed investment (RFI) increased 59.3% in the third quarter, after a 35.6% decrease in the second quarter of 2020. The increase in nonresidential fixed investment primarily reflected a big jump in transportation equipment (+258.5%). The increase in residential fixed investment primarily reflected an increase in other structures (+98.6%), consisting primarily of manufactured homes, improvements, dormitories, net purchases of used structures, and brokers’ commissions on the sale of residential structures and adjoining land, and other ownership transfer costs.
Both federal government spending and state and local government spending decreased in the third quarter. Meanwhile, imports, which are a subtraction in the calculation of GDP, increased sharply.