US growth surged in summer but recovery is slowing

The economy has reopened but full recovery remains out of reach, especially in cities such as New York

The US economy emerged quickly from the depths of the crisis triggered by coronavirus lockdowns this spring, but full recovery remains out of reach.

Official figures show the economy grew at a record 7.4% in the three months to 30 September from the prior quarter, when it suffered a severe decline.

But output remained 2.9% lower compared to the same period a year ago.

The data comes as analysts warn the rebound may be running out of steam.

"Overall, the initial recovery in GDP after the first wave of lockdowns were lifted was stronger than we originally anticipated," said Paul Ashworth, chief US economist at Capital Economics.

"But, with coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower."

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The US was not hit as badly as many places this spring, when countries around the world went into lockdown. The economy shrank 9% in the second quarter, compared to a roughly 20% contraction in the UK, 13.8% decline in France and 9.7% fall in Germany.

The initial US slump has been partially offset by the growth between June and September, which came as businesses reopened, employers recalled workers and shoppers returned to restaurants and stores - helped by trillions of dollars in government aid.

On an annual basis - the way the US prefers to measure growth, which assumes such rates would continue for 12 months - the economy grew by some 33% in the third quarter, following a record 31% contraction in the second.

But after the initial burst of activity, jobs growth has slowed and employers have yet to restore more than 10 million positions cut during the spring.

Stimulus stalemate

The unemployment rate stood at 7.9% last month, down from the 14.7% high recorded in April but still more than double the jobless rate in February.

In recent weeks, major companies, including plane-maker Boeing, financial firm Charles Schwab, and media giant Walt Disney, have announced new job cuts. Oil giant Exxon on Thursday said it was slashing 1,900 jobs in the US.

More than 750,00 people filed new claims for unemployment benefits last week and more than 22 million continue to collect some form of benefits, the US Labor Department said separately.

"As we move beyond the confinement and re-opening dynamics that drove violent swings in activity between March and September, the sober realities of the economic situation will become more apparent," said Brian Coulton, chief economist at Fitch.

"Growth is set to slow sharply, we are still a long way from normalisation and the surge in the virus cases means social distancing and all its related economic implications are here to stay."

Election politics

The gross domestic product (GDP) figures - the broadest measure of economic activity - come less than a week before the US presidential election and as the debate in Washington about the need to fund additional coronavirus relief remains at an impasse.

Republicans have pointed to the faster than expected recovery as a sign that more limited aid is appropriate for an economy on the mend.

On Twitter, US President Donald Trump celebrated the growth, calling the third quarter gains the "Biggest and Best in the History of our Country, and not even close".

"Next year will be FANTASTIC!!!" he added, while warning that a win by his challenger Joe Biden next week would "kill it all".

But Democrats have called for more than $3tn in additional spending, saying Republican resistance to such a large relief package will hurt the economic rebound.

"Our nation still has a long way to go before we overcome this public health crisis and our economy fully recovers," New York Senator Chuck Schumer, who leads Democrats in the Senate, said on Thursday after the figures were announced. "Much more needs to be done."