Forecasters now expect the U.S. economy to grow much faster in the last three months of the year after a November 24 economic data dump showed a much rosier picture than they did. hadn’t foreseen it.
The new data points to stronger growth in the third quarter than originally announced, and an acceleration in the pace of the recovery in October and November. Economists at various institutions, from Morgan Stanley to the Atlanta Federal Reserve, have increased their GDP estimates for the fourth quarter in response.
A strong end to the year is not inevitable, however. Another delta-like increase in covid-19 cases could slow recovery again. Other than that, here are the indicators that make economists optimistic:
Strengthening of GDP in the third quarter
Economists have different ways of measuring economic growth. The most traditional GDP is based on spending on goods and services. It rose 2.1% in the third quarter, according to the US Bureau of Economic Analysis (BEA). But on Wednesday, the agency released another measure of growth, gross domestic income (GDI), which is based on the income of individuals and businesses. It grew much faster than GDP, 7.6% compared to the same period last year.
The counting of the two digits is prone to error and is often revised months or even years later, so economists have started to average the two. The resulting indicator turned out to be a fairly good predictor of the final GDP figures.
According to calculations by Jason Furman, a Harvard economist, the new GDI figure translates into 4.4% growth in the third quarter, double what was announced.
Unemployment registrations at historic low
Meanwhile, jobless claims for the week ending November 20 fell to a 50-year low (pdf) of 199,000, which likely equates to a strong employment report for November. This is the first time that claims have fallen below pre-pandemic levels, and it indicates that employers are very reluctant to lay off workers due to labor shortages, said Daniel Zhao, economist. principal of Glassdoor. noted on Twitter.
However, claims filed before this week stand at 2.05 million and the number of unemployed is still higher than it was before the pandemic, signaling that the labor market will not fully recover anytime soon.
Consumers and businesses spend more
Americans are maintaining their consumption habits in the face of rising prices. Consumer spending rose 1.3% (or 0.7% adjusted for inflation) in October, according to BEA data. Incomes, meanwhile, rose 0.5% after falling 1% in September.
Businesses are also doing their shopping, with equipment spending up 0.6% in October. Overall, durable goods shipments rose 1.5% from the previous month. Certainly, some sectors are still struggling due to supply chain issues. Orders for transport such as airplanes fell 2.6%
Reassessing the US recovery
This is how forecasters upped their projections for economic growth in the fourth quarter in response to the wave of positive economic data: