GDP rebounds in Q3, analysts see slowdown ahead

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Gross domestic product surpassed economists' expectations, while initial jobless claims also performed better than forecast, while pending home sales fell unexpectedly, but with COVID-19 cases rising throughout the nation, the economic momentum may not continue into the final quarter of the year, analysts said.

The advance reading of third quarter GDP showed a 33.1% surge on a seasonally adjusted annual basis, the Commerce Department said Thursday.

Economists expected a 31.9% gain.

In the second quarter, GDP sank 31.4%.

The personal consumption expenditures price index rose 3.7% in the initial third quarter reading, compared to a 1.6% decline in the second quarter. The core PCE price index, which excludes food and energy, climbed 3.5% in the third quarter, after a 0.8% slide in the prior quarter.

Economists anticipated a core PCE increase of 4.0%.

Final sales of domestic product also reversed, rising 25.5% in the quarter after dropping 28.1% the quarter before.

“Record gains are not enough to dig us out of the hole created by COVID,” said Diane Swonk, chief economist at Grant Thornton. “Prospects for growth in the fourth quarter are deteriorating. Both consumers and businesses pull back when cases are surging. Wall Street appears to have finally gotten the message. Much rides on whether a lame duck Senate will hear the economy’s cries as well. Without more stimulus, there will not be as much of a foundation to rebuild on, once the crisis passes.”

Despite the record rise in this read, she noted, GDP remains 3.5% below its Q3 2019 level. “That is close to the worst loss, 4% that we suffered during the depths of the Great Recession in 2008-09.”

Many areas showed “strong growth,” noted Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association. “Expressed as an annual rate, consumer spending on durable goods was up more than 80%, business spending on equipment increased more than 70%, residential investment increased almost 60%, and both exports and imports of goods were up over 100%. The data show a picture of an economy re-opening and restocking over the summer.”

But, Fratantoni said, “The MBA expects that the pace of economic growth will slow in the fourth quarter and into next year, but expansion should nonetheless continue, provided the current spike in virus cases does not lead to another complete lockdown.”

Initial claims
Initial jobless claims fell to a seasonally adjusted 751,000 in the week ended Oct. 24, from the previous week’s upwardly revised level of 791,000, originally reported as 787,000, the Labor Department said Thursday.

Economists projected 775,000 claims in the week.

Continuing claims dropped to 7.756 million in the week ended Oct. 17, from an upwardly revised level of 8.465 million a week earlier, first reported as 8.373 million.

The states with the largest rise in claims in the week ended Oct. 17 were: Massachusetts (5,442), Kansas (3,010), Virginia (2,255), Texas (616), and Minnesota (493), while the states with the biggest drops were: California (16,207), New York (11,495), Georgia (9,274), Florida (7,834), and Michigan (7,774).

Pending home sales
Pending home sales declined 2.2% in September, after an 8.8% jump in August, the National Association of Realtors said Thursday.

Economists anticipated a 4.5% rise.

Year-over-year, sales are up 20.5%.

“The demand for home buying remains super strong, even with a slight monthly pullback in September, and we’re still likely to end the year with more homes sold overall in 2020 than in 2019,” said NAR Chief Economist Lawrence Yun. “With persistent low mortgage rates and some degree of a continuing jobs recovery, more contract signings are expected in the near future."

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Economic indicators Jobless claims Housing Housing market