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New GDP Numbers Won't Be Enough To Repair All Economic Damage

DAVID GREENE, HOST:

There is news this morning that the U.S. economy grew at a record pace during the past three months. Not many people are popping champagne corks, however. This is because the economy also shrank at a record pace in the three months before that. And as strong as the rebound was in July, August and September, it was not enough to repair the damage done by the pandemic earlier this spring. NPR's Scott Horsley is here to talk us through this. Hi, Scott.

SCOTT HORSLEY, BYLINE: Good morning, David.

GREENE: So what does this morning's report tell us about how the economy is doing?

HORSLEY: The GDP report from the Commerce Department shows the economy has bounced partway back from the depths of the pandemic recession. The economy grew about 7 1/2% during the third quarter. That is a record high. And there are some champagne corks popping at the White House. The president has been touting this as a sign of a really strong recovery. He talks less about the previous quarter, though, when the economy suffered a record large drop of about 9%. The economy also shrank a little bit in the first three months of the year, so altogether GDP is about 3 1/2% smaller now than it was at the end of last year before the pandemic hit.

GREENE: Scott, some of the headlines coming out are saying 33% growth in the quarter. What does that number exactly mean?

HORSLEY: That's right. The government routinely reports these quarterly changes in GDP as if they were sustained for a full year. And that exaggerates both the size of the downturn in the spring and the rebound during the summer. And both the downturn and the rebound are pretty big to start with. In the spring, for example, the Commerce Department said the economy shrank at an annualized rate of 31%, meaning if the slide had continued for a full year, we would have wound up with an economy 31% smaller. Luckily, that didn't happen. The slump was sharp but mercifully short lived. Likewise, the growth spurt we saw early in the summer is not likely to last. Nariman Behravesh is chief economist at IHS Markit. He calls this a boom and fade, much of it resulting from pent-up demand as businesses reopen. But he doesn't expect it to last.

NARIMAN BEHRAVESH: If you pull back on a rubber band and let go, it's going to snap back. But then it kind of goes limp back to that. Certainly the fourth quarter and maybe early next year will be pretty weak growth.

HORSLEY: And that's especially true as we see a fresh surge in coronavirus infections. The stock market's reacting to that. That's why you saw the Dow plunge more than 900 points yesterday.

GREENE: You mentioned that there's some positive feeling in the White House. I mean, not just because the U.S. economy might be doing better but because if you have a sitting president, you know, in the later stages of a push for reelection seeing economic improvement, that's usually good news.

HORSLEY: That's right. And in fact, back in the springtime, I talked with Jason Furman, who was an economic adviser to former President Obama. He was warning fellow Democrats that a rebound like this could give the president a lift just before the election. I talked to Furman this week, though, and he was a little less concerned about that because a lot of the growth reflected in today's report actually happened in the late spring and early summer. And some of that momentum has since faded.

JASON FURMAN: From a political perspective, it isn't just, are you improving, but how is the pace of improvement? And the pace of improvement is slowing. And that I think makes it less politically good for President Trump or maybe even politically bad for him.

HORSLEY: And we saw another sign of that this morning when the Labor Department reported another three-quarters of a million people applying for state unemployment benefits just last week.

GREENE: NPR chief economic correspondent Scott Horsley. Scott, thanks.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.