Following the record decline in Q2, economists were expecting Q3 to be a record in the opposite direction.  And that’s exactly what we got.  While economists were expecting growth of 32.0% on a seasonally adjusted annualized rate (SAAR), the actual reading came in even stronger at 33.1%. With economic growth of 33.1% following a quarter where activity shrank 31.4%, a person’s first reaction may be to think it’s a wash, but you know math, so you know that’s not how it works.

The chart below shows US GDP in dollar terms going back to 2000.  After Q2’s decline, economic activity in the US was more than 10% below its prior peak, and even after Q3’s rebound, we’re still down 3.5% from Q4 2019.

3.5% may not sound like much of a hole, but it’s still a large number. The chart below shows how far GDP was off its record high each quarter since 1950.  Because the US economy is normally growing, GDP is typically at record highs, and even when activity contracts, the magnitude of the decline is usually measured in the low single-digit percentage range.  Prior to the COVID shutdowns, in fact, there was never a time in the last 70 years where GDP was more than 4% off a prior peak.  At the end of Q2, the hole was more than twice that at 10.2%.  Because of that, even after a record quarter of growth, GDP is still further below its peak than it has been in all but two other periods (1958 & 2009) in the seventy years leading up to the start of 2020.  Like what you see? Click here for instant access to our actionable research and interactive tools.

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