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U.S. economic output grew at the fastest pace on record last quarter as businesses began to reopen and customers returned to stores. But the economy has climbed only partway out of its pandemic-induced hole, and progress is slowing.
Gross domestic product grew 7.4 percent in the third quarter, the Commerce Department said Thursday. The gain, the equivalent of 33.1 percent on an annualized basis, was by far the biggest since reliable statistics began after World War II; the previous record was a 3.9 percent quarterly increase in 1950.
Still, the economy in the third quarter remained 3.5 percent smaller than at the end of 2019, before the pandemic began. By comparison, G.D.P. shrank 4 percent over the entire year and a half of the Great Recession a decade ago.
The report was the last major piece of economic data before the presidential election on Tuesday. Even before the release, President Trump touted the prospect of a big gain as evidence that the economy had roared back to life after the spring’s pandemic-induced shutdowns.
But economists said the third-quarter figures revealed less about the strength of the recovery than about the severity of the collapse that preceded it. G.D.P. fell 1.3 percent in the first quarter and 9 percent in the second as the pandemic forced widespread business closures. A big rebound was inevitable once the economy began to reopen. The challenge is what comes next.
“The reason we had such a big bounce is that the economy went from closed to partially open,” said Michelle Meyer, head of U.S. economics at Bank of America. “The easy growth was exhausted, and now the hard work has to be done in terms of fully healing.”
Already, there are signs that the recovery is losing steam. Industrial production fell in September and job growth has cooled, even as a growing list of major corporations have announced new rounds of large-scale layoffs and furloughs. Most economists expect the slowdown to worsen in the final three months of the year as virus cases rise and federal aid to households and businesses fades.
“We’re having a record recovery, but it comes after an even more record collapse, and it looks like economic momentum is fading in the fourth quarter,” said Jim O’Sullivan, chief U.S. macro strategist for TD Securities.
The pandemic didn’t just shrink the U.S. economy. It also reshaped it, at least temporarily — shutting down some industries almost entirely, while leading to a surge in demand in others.
Consumer spending on goods was up sharply last quarter, rising nearly 10 percent, more than enough to offset a relatively mild 2.8 percent decline in the spring. Spending on durable goods was particularly strong, as Americans rushed to buy cars, recreational vehicles and equipment for their new homebound lifestyles.
Spending on services, on the other hand, collapsed in the second quarter, falling 12.7 percent as consumers abandoned restaurant meals, gym classes and family vacations. Services spending rebounded 8.5 percent last quarter, but remains 7.7 percent below its pre-pandemic level.
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Two Wisconsin businesses illustrate the diverging paths of the two sectors.
When U.S. auto plants shut down last spring, it meant an immediate loss of business for Husco International, a manufacturer of hydraulic and electromechanical components for cars and other equipment. The company cut back production and furloughed many of its workers.
But by the end of May, car factories were humming again, and Husco’s business had begun to bounce back. In September, its automotive division had its best month on record.
Austin Ramirez, the company’s president and chief executive, said he still expected sales to be down about 10 percent for the full year. Despite September’s strong results, the pandemic and the economic weakness it has wrought are still dragging down demand. And the virus is causing other complications, leading to more employee absences. But the damage to his business is not nearly as severe as in the last recession a decade ago.
“In a cyclical business like ours, this has actually been a fairly mild recession that we’ve had tools to manage,” Mr. Ramirez said.
For Becky Cooper, it is a different story. Bounce Milwaukee, the family entertainment center that she owns with her husband, shut down in March and has yet to reopen. They experimented over the summer with selling takeout pizza and offering drive-in movies in the parking lot, but sales weren’t enough to offset costs.
The Coopers began the year dreaming up plans for what they would do once they paid off the Small Business Administration loan they used to open the business six years ago. Instead, they had to drain their bank accounts and take on more debt to get through the pandemic. Now, with coronavirus cases spiking in Wisconsin, they don’t know when they will be able to welcome customers again — or whether they can hold out until then.
“I’m watching those numbers go up and just feeling so powerless,” Ms. Cooper said. “The beginning of March seems almost insanely optimistic to me, and I don’t see how much past that we could possibly go.”
As the U.S. economy rebounded in the third quarter, one sector played a big role: Motor vehicles and parts were selling rapidly, contributing to an overall bounce in durable good spending.
Americans bought $582 billion in automobiles and their components in the last quarter, stated in 2012 dollars, a 17 percent increase from the preceding three months. The category was the biggest single contributor to the growth in goods spending last quarter, based on a Bureau of Economic Analysis breakdown in its gross domestic product report released Thursday.
After falling sharply in the spring amid state and local lockdowns, demand for vehicles has risen as consumers avoided public transit, saved up money that they would otherwise spend on travel or at movies or bars, and shook up routines because of the coronavirus pandemic. Ford Motor on Wednesday reported a big jump in third-quarter profit as sales rebounded after the pandemic shut down dealerships and factories for about two months this spring.
The Federal Reserve’s policies may be helping to bolster the turnaround. The central bank cut interest rates to rock-bottom levels in March, and auto loan rates have edged lower. Yet there is a sharp divide in who can borrow money to buy cars.
“Auto loan balances increased solidly overall but declined for borrowers with low credit scores,” Fed staff members noted in minutes from the policymakers’ September meeting.
The main factor behind the big third-quarter rebound in U.S. economic output was a surge in spending by consumers. Business investment played a major role too, and for similar reasons: Activity was all but halted during the spring lockdowns, then bounced back once the economy began to reopen.
But beyond those big drivers, details in the report help show how the pandemic has reshaped the economy, if only temporarily.
Residential construction, for example, grew 12.3 percent in the second quarter, the biggest gain on record, and is one of the few sectors doing better than before the pandemic. The housing market froze up briefly in the spring, but came roaring back, buoyed by record-low interest rates and demand from apartment dwellers looking for more space to ride out the pandemic.
At the same time, trade patterns have been scrambled by the pandemic — first by factory shutdowns in China that disrupted global supply chains, then by the steep drop in demand for goods and services as countries went into lockdown.
In the United States, imports have rebounded relatively quickly, as consumers have returned to buying goods made in China and elsewhere. But exports have been slower to recover, in part because the United States is a big exporter of services — visits from foreign tourists and students, for example — which have been slow to recover. The result is a widening of the U.S. trade deficit.
Government spending fell in the third quarter. That might seem surprising given the huge outlay of federal money to help consumers and businesses weather the crisis. But much of that spending counts as transfer payments, which don’t show up directly in G.D.P. (The spending that the money makes possible, however, is counted as consumption.) State and local governments have begun to slash spending in response to falling tax revenues.
The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.
Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.
Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.
“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”
The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.
The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.
“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.
Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.
“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.
The number of workers newly filing for unemployment benefits dipped slightly last week, a sign that the country’s economic recovery remains fragile.
The Labor Department reported on Thursday that 732,000 workers filed new claims for unemployment benefits last week, a decrease of about 28,000 from the previous week.
New claims for Pandemic Unemployment Assistance, an emergency federal program that covers freelancers, part-timers and other workers who do not qualify for benefits under the regular unemployment system, were tallied at 360,000, up from 345,000.
On a seasonally adjusted basis, new state claims totaled 751,000.
For several weeks, new claims for state jobless benefits have totaled roughly 800,000 a week — much lower than the total during March and April after the pandemic struck, but extraordinarily high by historical standards.
“These are remarkably elevated levels of claims,” said Mark Hamrick, senior economic analyst for Bankrate.com. “There are huge cross sections of our society and sectors within it that are suffering.”
While new jobless claims are down, the number of people receiving assistance from Pandemic Emergency Unemployment Compensation — a federal program that provides 13 weeks of additional benefits after state unemployment insurance runs out — is rising, as millions of people who lost jobs early in the pandemic remain out of work more than six months later.
“We’re moving in the right direction but not nearly as quickly as we need,” said AnnElizabeth Konkel, a labor market economist for the Indeed Hiring Lab. “We need to recover quicker so that we don’t have people transitioning to long-term unemployment.”
Surges in coronavirus cases in the Midwest could foreshadow a fresh round of jobless claims in the coming weeks if states impose lockdowns or if people feel less comfortable shopping in stores or dining at restaurants, Ms. Konkel said. And as fall turns to winter, many businesses that have managed to stay afloat may be forced to close their doors.
“In warm weather, outdoor dining was a lifeline for many businesses,” said Julia Pollak, a labor economist at the career site ZipRecruiter. “Soon that will no longer be an option in many states, so we’re likely to see more layoffs.”
When the pandemic hit, Laura Mayer was the general manager at Public House, a restaurant at Oracle Park, the San Francisco Giants’ baseball stadium. Ms. Mayer, 56, was furloughed in March, and started receiving about $450 a week in state unemployment benefits in May.
At the end of September — the same week that her state benefits ran out — the furlough turned into a permanent layoff. She got a 13-week extension through the federal Pandemic Emergency Unemployment Compensation program, enough to last through the end of the year.
“I don’t know what will happen when that unemployment is gone,” Ms. Mayer said. “What am I going to do then?”
Her partner, Steven Flamm, is also a restaurant worker. After being laid off in March, he found a job as a server in June. He works about 25 hours a week, but his income is low enough that he still qualifies for unemployment benefits.
With their combined income, they are able to scrape together the $1,600 monthly rent for their two-bedroom apartment, especially after they stopped ordering takeout food and canceled their cable-television subscription.
But Ms. Mayer, who has a lung condition, worries that Mr. Flamm, 63, could be exposed to the virus at work and bring it home to her. She also fears for her own future, as she has only worked in restaurants for 35 years and wonders how she will develop new skills and start over.
“All that I’ve built my whole life just got wiped out,” she said. “I just don’t know what my future is, and I think that’s the scariest part.”
The European Central Bank left monetary policy unchanged following a meeting of its Governing Council on Thursday, but signaled it could take further steps to stimulate the eurozone economy in December.
“In the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate,” the bank said in a statement.
The central bank said that, following a fresh assessment of the economy in December, it would “recalibrate its instruments, as appropriate, to respond to the unfolding situation and to ensure that financing conditions remain favorable to support the economic recovery.”
The outlook for the eurozone has darkened in recent days as Germany and France, its two largest economies, imposed harsh restrictions on social contact in response to signs that coronavirus infections were getting out of control.
France ordered residents to stay home except for essential trips like food shopping or visiting the doctor. The German government ordered bars, restaurants, theaters and fitness studios to close, and limited social gatherings to a maximum of 10 people from no more than two households.
Economists now expect the eurozone to sink back into recession after rebounding in the third quarter. “Last night’s announced lockdowns in France and Germany all but seal the deal on a negative growth rate,” Bert Colijn, a senior economist at ING Bank, said in a research note.
Comcast, the nation’s largest cable operator and the owner of NBCUniversal, passed a milestone that highlights the broad shift happening across the media industry: It now has more streaming subscribers than cable-TV subscribers.
About 22 million people signed up to its Peacock service since it started in April, the company reported Thursday as part of its third-quarter results. That’s more than double the figure it reported at the end of July.
The company’s foundational business — cable TV — now has 19 million subscribers, a decline of 273,000 from the previous quarter. That’s not a surprise: The pay-TV industry has for years seen a steady drop, as customers cut the cord in favor of cheaper streaming.
Comcast reported overall revenue of $25.5 billion and profit of $2 billion, beating expectations.
Peacock, unlike Netflix or Disney+, is free and relies on a more traditional media model: advertising. That’s helped Comcast sign up new customers relatively quickly; it aims to reach 35 million by 2024.
The streaming platform is unlikely to be a moneymaker, but it does have has strategic value. Peacock is seen as a way to keep customers glued to broadband, Comcast’s most important business. The streamer is built into Comcast’s broadband-only offering and is relatively easy for cable television customers to use. Peacock recently signed a distribution agreement with Roku, which is available in about half of all households that have streaming devices.
Like other cable operators, Comcast has emphasized its internet service as it recognizes that pay television will become a smaller, less profitable arm of a bigger enterprise. The pandemic has only hastened that transformation. As the country went into lockdown, Comcast benefited even more from the surge in internet users and added 633,000 customers during the three months ending in September, the most it has picked up in a single quarter. It now has about 28 million broadband subscribers.
At NBCUniversal, the company continued to see falloff in both revenue and profit amid the pandemic. The shift in professional sports telecasts and the shutdown of movie theaters and theme parks has eaten into NBCUniversal’s revenue, which fell 19 percent to $6.7 billion. Movie studio sales declined by a quarter to $1.3 billion, and theme parks saw the biggest revenue drop, about 81 percent, to $311 million.
Even so, the company promoted its upfront presentation, where it sells advertising time to marketers ahead of the new season. Ratings have been down everywhere, but NBC said it was able to get higher ad rates.
Stocks on Wall Street tried to regain their footing on Thursday, a day after the S&P 500 suffered its worst decline in more than four months.
The index swung from gains to losses and back again in early trading Thursday after falling 3.5 percent the day before, while the Stoxx Europe 600 was also volatile after it had dropped 3 percent on Wednesday.
Investors have been spooked by the rapid pickup in coronavirus cases in Europe and the United States, and new measures by governments to control the new wave of the pandemic. Both France and Germany announced new nationwide restrictions on Wednesday, shuttering hospitality and leisure businesses and asking people to stay at home through November.
The renewed focus on the pandemic has added to an already turbulent stretch for traders on Wall Street, where expectations for imminent economic aid from Washington have been dashed and concern about the upcoming presidential election are keeping many investors on the sidelines.
As recently as Oct. 12, the S&P 500 was up more than 9 percent for the year, as investors seemed to grow more confident that Congress and the White House would be able to produce a new dose of federal stimulus before the election. The index’s annual gain has now shriveled to just 1.3 percent.
A report on U.S. gross domestic product data for the third quarter, released Thursday, showed the fastest quarterly increase on record but revealed an incomplete recovery, with the economy still several percentage points smaller than before the pandemic. G.D.P. grew 7.4 percent in the third quarter, the Commerce Department said. Weekly unemployment claims remained elevated at 732,000.
Airbus reported a consolidated operating loss of 636 million euros, or $745 million, in the third quarter, but the European aerospace giant managed to stop bleeding cash and expected continued stability after adjusting its business in response to the coronavirus crisis, the company said Thursday. Chief executive, Guillaume Faury, sounded a cautiously optimistic note about the company’s future at a news briefing, a day after its rival Boeing announced plans to slash another 7,000 jobs through the end of next year, building on a much larger cut announced this spring.
Ford Motor reported a big jump in profit in the third quarter after a yearslong restructuring and a rebound in sales after the pandemic shut down dealerships and factories for about two months this spring. The automaker earned $2.4 billion in the three months ended in September, up from $425 million for the same period a year earlier. It lost money overseas, but the company’s North American operations and its division that offers credit did well.
The online lender Social Finance, better known as SoFi, received tentative approval on Wednesday for a national banking charter, which would let the company hold deposits and offer consumers a broader range of financial services. The Office of the Comptroller of the Currency granted SoFi preliminary approval for a charter, subject to SoFi’s compliance with additional regulatory requirements. In particular, SoFi must apply for Federal Reserve membership and obtain deposit insurance from the Federal Deposit Insurance Corporation. Those next steps will take several months, at the least; the earliest SoFi could actually start running a bank would be some time next year.