3Q20 GDP: Swift Rebound, Still Below Year-Prior Levels

Bottom Line: The advance estimate of the 3rd Quarter GDP showed a record rebound after the record decline in the 2nd Quarter due to shutdowns for the novel coronavirus. Consumption drove the rebound and was aided by sharp gains in residential investment as homebuilders responded to a shift in demand towards single-family homes. Business fixed investment was also strong as industries like autos rebounded and saw strong demand. Overall, the magnitude of volatility in the economy was historically unprecedented, but the economy remained 2.9% below year-ago levels as of the end of last month. Gross Domestic Product ROSE by 33.1% in the 3rd Quarter, higher than market expectations for an increase of 2.9%. Economic activity was 2.9% BELOW its year ago level and 23.9% ABOVE its pre-recession 2007 Q4 cyclical peak.

• Inventory Investment ROSE by $286.1 billion, adding 6.62 percentage points to overall economic activity.
• Consequently, Real Final Sales ROSE by 25.5% and was 2.7% BELOW its year-ago level.
• Imports ROSE by 91.1% and Exports ROSE by 59.7% so Net Exports FELL by $235.7 billion.
• This implies that Real Final Domestic Demand ROSE by 29.2% and was 2.3% BELOW its year-ago level.
• Consumer Spending ROSE by 40.7%, contributing 25.27 percentage points to economic growth.
• Business Investment ROSE by 20.3%, adding 2.88 percentage points to GDP. Intellectual property products declined by 1.0% while non-residential structures declined by 14.6%.
• Residential Investment ROSE by 59.3%, adding 2.09 percentage points to economic growth.
• Finally, Government Purchases FELL by 4.5%, subtracting 0.68 percentage points to GDP. This was its 2nd negative contribution in the last 12 quarters.
• The GDP Price Index ROSE by 3.5%, compared with market expectations of 2.9%. This is also 1.1% ABOVE its year-ago level.