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Upcoming GDP report: a statistical nothingburger

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Rebecca Valli

Next week, the Commerce Department will release GDP figures for the third quarter. Analysts expect the number to reflect a considerable growth in the U.S. economy overall, with projections putting the increase at about 30%. But Cornell University experts explain why that number fails to provide a true picture of what the country is experiencing.   


Daniel Alpert

Senior Fellow in Financial Macroeconomics at the Law School

Daniel Alpert, senior fellow and adjunct professor of macroeconomics at Cornell Law School, has been tracking layoffs and furloughs since the pandemic started. He found that the real-time jobs picture is worse than lagging mainstream jobs data indicates. 

 

Alpert says:

“Q3 GDP will be perhaps the most backward-looking number ever reported in economic history. 

“The huge GDP growth it will indicate is growth off a level severely depressed by a first-ever lockdown of much of the U.S. economy. The measure itself is meaningless.

Those interested in assessing the real condition of the U.S. economy (albeit in the rear-view mirror) should instead look at annualized 2020 first three quarters (Q1 through Q3) GDP and compare it to actual 2019 GDP.

“But even that does not speak to the real condition of the U.S. economy today. Forecast GDP in Q4 is now down-trending, and if we do not get relief out to households and businesses, November and December are likely to take Q4 into actual contraction.

“Unemployment is at deep recessionary levels and consumer spending is now headed for a fall as the household savings amassed during the CARES Act relief period is vanishing. Consumer incomes ran well behind spending in September with more of that to come.

“Moratoria on rent payments, and some debt payments, are being extended. And some private lenders are forbearing (as they have little option to do otherwise). But the bills to households and business are mounting up as the pandemic crisis rolls on and on. This will worsen with no additional relief and pose an enormous headwind to growth going forward.

“Barring huge federal government transfers into the economy, to households, firms and state and local governments, Q1 2021 will put us back into technical recession.

So, Q3 GDP? A statistical nothingburger.”

Steven C. Kyle

associate professor, macroeconomics policy expert

Steven Kyle, associate professor of applied economics and policy at Cornell, says that gains in third quarter GDP were a direct consequence of the stimulus package Congress passed in the spring. With a new round of aid locked into political stalemate, the economy will likely experience a big negative shock soon.  

Kyle says:

“The third quarter GDP growth figure is likely to come in at an extremely high 30+% growth, after a more-than-30% drop in the second quarter. These figures reflect the fact that large parts of the economy were shut down due to the virus in the spring but were at least partially reopened in the third quarter.

“However, it would be a mistake to break out the party supplies at this point. 

“A 30% annualized figure sounds great, but it won’t put us back above our previous peak. There are distinct signs that progress slowed through the third quarter with the pace of rehiring slowing down as the third wave of the virus began to take hold and the effects of the spring stimulus bills ended. 

“It is likely, given McConnell’s refusal to even entertain the idea, that the current efforts at a new stimulus package won’t be successful or at a minimum will be significantly delayed. Much of the strength of the third quarter was due to these various programs and if they aren’t renewed it will be a big negative shock.

“Many, many workers are still jobless. Absent some new direct assistance to them there will be severe hardship for many.

“Finally, if the third wave of the pandemic continues to grow there is no telling how much damage could result from it. Any forecast (including mine) should be taken with a very large grain of salt. In simple terms, there is a very wide range of uncertainty at the moment as to what the fourth quarter will look like.”

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