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What the US’s GDP figure really means

A man walks near a retail space for lease after it shuttered due to the outbreak of Covid-19.
REUTERS/Eduardo Munoz
Fewer stores means lower GDP.
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The headline number in US economics today is +33.1%. That’s the seasonally adjusted, annualized rate of GDP growth from July to September, a.k.a. the third quarter of 2020.

That figure however isn’t very useful on its own. The Covid-19 pandemic and ensuing restrictions on movement and business intentionally and temporarily crippled the economy. Since those restrictions have been relaxed, and businesses are reopening, the economy appears to have grown rapidly. But the US economy is still smaller than it was before the pandemic.

Also keep in mind that 33.1% annualized growth does not mean that the economy grew 33.1% or will grow 33.1%. It means the economy grew 7.41%.

In summary, GDP:

  • Is down 3.48% since the beginning of the pandemic
  • Is down 2.91% in the last year
  • Grew 7.41% from the second quarter to the third
  • Would be 33.1% higher than it was in the second quarter, if the US economy grew 7.41% again for three more quarters in a row.

To be clear, US GDP growing more than 7% a quarter for the next three quarters in a row is not anywhere close to happening. The US record for four cumulative quarters of GDP growth is 13.37%, the equivalent of 3.2% growth per quarter. In fact, US economists are already worried about a double-dip recession.

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