The U.S. economy grew at a record 33.1% in the third quarter, even after most government transfer payments expired. When politicians lift their lockdowns, and Americans can get on with their prudently cautious lives even in a pandemic, people work, business invests and the economy grows.
Thursday’s GDP report looks like the long-predicted V-shaped recovery after the second-quarter’s lockdown-induced collapse. The rebound was almost across the board. Personal consumption contributed 25.27 percentage points to growth, with 16.04 from services and 9.24 from goods. Industries most hurt by spring lockdowns bounced back strongly, including motor vehicles, health care, and even food services and recreation.
Business investment added 2.88 percentage points, with 3.34 points of that coming from equipment as manufacturers have retooled factories to meet shifting demand. Investment in new structures declined amid continued turmoil in commercial real estate. But retailers have been reporting increased investment in new warehouses.
All of this happened even without more government fiscal spending. Imagine that. Remember predictions that the economy would fall off a “demand cliff” once $1,200 checks stopped and $600 enhanced jobless benefits ended on July 31? Nancy Pelosi and economists who are also advising Joe Biden predicted doom.
Sorry to disappoint. Government subtracted 0.68 points from GDP in the quarter, another lesson that political income transfers can never replace the private economy in creating jobs and raising incomes. The personal savings rate was a healthy 15.8%, indicating there’s plenty of consumer spending capacity.
You’d think this would all be a welcome relief, but now the gloomsters say the fourth quarter will collapse as Covid-19 cases rise. It certainly could if politicians lock down the economy again.
But the economic signals in October have shown strong momentum as businesses have reopened and rehired employees. Many have had to boost wages to attract workers. The Federal Reserve reported in its Beige Book last week that businesses in transportation, construction, manufacturing, retail and warehousing have struggled to find workers.
Continuing weekly jobless claims have been falling at an increasing rate since the enhanced federal jobless benefits fell to $300 in August, and even faster since they disappeared in most states this month. Continuing claims are down by half since the beginning of August.
The continuing claims rate fell to 5.3% for the week ending Oct. 17 from 5.8% the week before and has shrunk dramatically in New York (6.5%) and New Jersey (5.4%) after they let more businesses reopen. Unemployment claims are nearing pre-pandemic levels in Utah (1.3%), Idaho (1.1%) and Nebraska (1.5%). Speaker Pelosi, what’s the matter with California (10.5%)?
States that maintained stricter, longer lockdowns—on top of their usual tax and regulatory burdens—are recovering more slowly. The Federal Reserve Bank of Philadelphia’s state incidence index, which tracks GDP growth, shows how far states were off from their pre-pandemic peaks last month: New York (-14.1%), California (-11.7%), Florida (-5.6%), Georgia (-1%) and Utah (-0.4%).
The economy still has a long road to regain the tragic losses of the lockdown months. GDP probably won’t hit its previous quarterly peak from 2019 until the middle of next year. But states like Texas and Arizona showed this summer that they can control Covid outbreaks without resorting to draconian new lockdowns. Hospitals in U.S. hot spots say they can cope with virus flare-ups while continuing elective surgery and other care.
The biggest economic risk now is a policy mistake like new lockdowns, new taxes on business, and regulatory uncertainty that slows investment. The American economy is showing in this pandemic year that it is remarkably resilient if politicians don’t crush it.
—The Wall Street Journal