skip navigation

Stay up to date on timely topics and market events. Subscribe to our Blog now.

October 29, 2020

Real GDP Grows at 33.1% Rate in 3Q, Led by Resurging Goods Sectors

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Real GDP grew at a 33.1% annualized rate in 3Q20. Context is everything, so let’s recount the various perspectives of this number. First, it is far and away the fastest quarterly growth rate ever recorded for the US. Then again, it follows far and away the sharpest quarterly decline ever recorded.

The arithmetic is such that a 33.1% rate of gain in 3Q20 does NOT fully offset the 31.4% rate of decline in 2Q20. [The arithmetic is that (1+33.1%)*(1-31.4%) < 1.] Rather, the 3Q20 level of GDP remains 2.2% below the 1Q20 level and 3.5% below the 4Q19 level.

By way of comparison, in 2Q09, at the trough of the recession triggered by the global financial crisis, GDP was down 4.0% from its previous cyclical peak (six quarters earlier). In other words, even after 3Q20’s torrid rate of growth, the economy is still below its 4Q19 peak almost as much as it was at the trough of the horrendous 2007-09 recession.

The final perspectives we’ll offer are the two we think most salient. Despite the gaping net decline in GDP still in place, there is no question that the economy’s recovery has been dramatically stronger than anyone would have ventured to guess. Back in May, nobody we know of was predicting 3Q20 growth anywhere north of 20%, and if anyone had been brash enough to predict 30-something percent growth, they would have been laughed down (shamed?). If this is not a V-shaped recovery, what is?

Furthermore, a glance within the components of GDP indicates that the recovery has been virtually complete wherever social distancing and continued shutdown have not gotten in the way. The goods sectors within GDP grew at a staggering 59.5% annualized rate in 3Q20, and the level of 3Q20 goods sector GDP was actually 2.3% above pre-Covid (1Q20) levels.

Exhibit 1: Real GDP Growth By Major Sector
Explore Real GDP Growth By Major Sector.
Source: Bureau of Economic Analysis. As of 30 Sep 20. Select the image to expand the view.

Construction GDP grew at a 16.4% annualized rate in 3Q20 and was within 2.1% of its pre-Covid levels. With pipeline problems inhibiting construction spending in 3Q20 and with new-home sales and starts remaining at elevated levels, construction GDP is sure to register even stronger growth in 4Q20.

The epicenter of weakness in the economy remains in services, where Covid strictures continue to inhibit. While services GDP rose at a nice 24.1% clip in 3Q20, that followed a 32.9% rate of decline in 2Q20 and left 3Q20 services GDP 6.3% below pre-Covid levels. Service sectors are likely to register another good growth rate in 4Q20. However, at the end of 2020, the remaining weakness in the economy is all but sure to be in these services sectors, and that weakness is likely to remain until vaccination or herd immunity allow a more complete reopening of such service venues as restaurants, theaters and resorts.

The threat of renewed shutdowns remains the biggest downside risk for the economy. From what we have read lately, “the science” would not support such renewed lockdowns, but the politics might take us there anyway.

© Western Asset Management Company, LLC 2022. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.