• US GDP growth forecast to set a record at 35% annualized.
  • Atlanta Fed GDPNow estimate is 36.2%, its highest for Q3.
  • New York Fed's Nowcast estimate is 13.75%.
  • Market have priced a sharp increase in GDP.

American economic growth raced ahead in the third quarter after the pandemic lockdown in March and April caused the largest GDP drop in history.

Expansion is expected to reach an annual rate of 35% last quarter after it collapsed at 31.4% in April, May and June.

The closure of much of the US economy under government orders produced a catastrophic fall in employment, 22 million American lost their jobs in the shutdown months and through September just over 50% have returned to work. In the last two weeks of March over 10 million people filed for unemployment benefits and, seven months later on October 16 the weekly filing was still 767,000.

Retail Sales plunged 22.9% in the closure months, spending in the GDP component Control Group fell 9.2%. Durable Goods Orders for long-lasting consumer and business items plummeted 35% and Nondefense Capital Goods, the business investment proxy, dropped 7.9%.

Retail Sales

FXStreet

Pandemic recovery

Surprisingly, the recovery in Retail Sales, the Control Group and Durable Goods Orders has equalled or surpassed the declines suffered in the shutdowns despite the continuing high levels of unemployment and job losses.

Retail Sales have gained 30% in the five months through September. Including the shutdowns in March and April, the average is 1.01% over seven months. The Control Group receipts are 18.1% higher in the same five-month period with a 1.27% average. Either performance would credit a healthy consumer and labor market, in the midst of COVID-19 it is remarkable.

Durable Goods added 36.7% in the five months from May to September which gives just a 1.7% surplus for the total pandemic time from March or a 0.24% average increase. Nondefense Capital Goods, the business investment analog, is up 11.4% since April or a respectable 0.5% monthly rise over the seven-month period.

GDP Projections

Consumer spending is about 70% of US economic activity.

The rapid expected recovery in GDP in the third quarter has been driven by a quick return of consumer and business spending. The surprise has been the level and continuation of the consumer renaissance in the face of 7.9% unemployment and the much higher underemployment rate of 12.8%.

Jobless benefits from Washington and the states have helped to maintain consumption but with the next stimulus bill stalled in election politics, the ability of consumers to maintain these essentially normal levels of spending will come under strain if another relief program is not passed.

The Atlanta Fed's GDPNow model estimates that GDP expanded at 36.2% in the third quarter, and the New York Fed's Nowcast program has a much lower forecast at 13.75%. The consensus view from the Reuters Survey of economists is 35%.

Atlanta Fed GDPNow

Conclusion and markets

Although a strong recovery in the third quarter is priced into the markets there is considerable range in many forecasts. The highly unusual economic events of the last seven months supply a vivid degree of uncertainty and markets are susceptible to any variation from the prediction.

Equities and the credit markets will respond in a linear fashion in either direction as GDP deviates from the forecast.

The dollar has been performing a limited safety role over the past several weeks, falling as perceived risk declines and climbing as risk rises. That dynamic should remain for US GDP. The stronger the US economy is in the third quarter the better for the globe and the less demand for the dollar safety trade. A weaker-than-expected GDP should prompt some modest immigration to the dollar.

 

 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD tumbles to five-week low on rising US yields, energy crisis

EUR/USD has tumbled below 1.17, hitting the lowest since August 20 as Europe struggles with soaring gas prices and China suffers power cuts. Fed Chair Powell is set to testify and comment about the bank's recent taper signal. 

EUR/USD News

GBP/USD drops below 1.3650 amid firmer dollar, energy crisis

GBP/USD is extending the drop below 1.3650, undermined by the US dollar's strength and the UK's fuel problem. The British army is on standby to mitigate fuel shortages. The pound ignores the hawkish comments from BOE Governor Bailey. 

GBP/USD News

XAU/USD drops to $1,735 area amid surging US bond yields

Gold witnessed fresh selling during the early European session and dropped to the $1,735 area or the lowest level since August 11 in the last hour.

Gold News

Crypto markets prepare for a bullish October

Bitcoin price shows signs of bullish breakout as it traverses a falling wedge. Ethereum price also displays an optimistic outlook as it forms a descending parallel channel.

Read more

Conference Board Consumer Confidence Preview: Unhappy but still spending

The collapse of consumer optimism in August has not exacted the expected toll from American spending, the most important factor in sustaining the US  economic recovery. August’s confidence reading at 113.8 was the lowest since February.

Read more

Majors

Cryptocurrencies

Signatures