US: Growth in the fourth quarter is set to slow sharply – Wells Fargo

The first reading of GDP growth during the third quarter showed a record expansion following a record contraction in the second quarter. Despite the s  |  29/10/2020 16:19

The first reading of GDP growth during the third quarter showed a record expansion following a record contraction in the second quarter. Despite the strong number, the level of real GDP still remains 3.5% below its peak in Q4-2019, argue analysts at Wells Fargo. 

Key Quotes: 

“Most spending components posted record rates of growth as the economy re-opened. However, growth is set to slow sharply in Q4, and new COVID cases pose a downside risk to our projected 6.1% Q4 growth rate.”

“U.S. real GDP jumped at an annualized rate of 33.1% in Q3-2020 relative to the second quarter. Although this is an eye-popping number, it came as little surprise because previously released monthly data indicated that real GDP would likely grow at a record pace in the third quarter. Nevertheless, the level of real GDP still remains 3.5% below its peak in Q4-2019. In other words, the size of the American economy at present is 3.5% smaller than it was immediately before the COVID pandemic struck the economy.”

“Real GDP growth in the third quarter was paced by the 40.7% moonshot in personal consumption expenditures, which reflects the re-opening of the economy earlier this year.”

“Although real GDP grew at a record pace in Q3-2020, growth in the fourth quarter is set to slow sharply. We currently project that real GDP will grow at an annualized rate of 6.1% in Q4. That said, we readily acknowledge that growth in the fourth quarter may not reach that rate if some restrictions need to be re-imposed in light of the recent acceleration in COVID cases.”
 

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