A new report from the Bureau of Economic Analysis reveals that gross domestic product (GDP), which estimates the size of the US economy through the value of the goods and services it produces, grew by 7.4% in inflation-adjusted dollars from July to September.
Sustained annual growth at this rate would translate to a 33.1% increase in GDP over the year. For comparison, GDP grew by 2.2% in 2019 and a record 18.9% in 1942, when the US entered World War II. The current-dollar GDP value now totals $21.2 trillion.
Quarterly inflation-adjusted growth rate data, which exists from 1947 onwards, shows that the highest previous quarter of GDP growth was in the first quarter of 1950, when GDP grew by 3.9% — almost half of this historic high. But the 9% decline recorded from April through June of 2020, as the pandemic intensified, was also the most severe quarterly drop since 1947.
Since the growth rate is relative to GDP reported in the previous quarter or year, a large decline in GDP can set the stage for a significant percent increase during the initial recovery, and vice versa. For example, the World War II spike in GDP gave way to an 11.6% drop in 1946 as war production ended, even though inflation-adjusted GDP remained higher that year than it was in 1942.
The fact that the growth rate is relative also means that maintaining the same percent increase this quarter will require a larger absolute increase in total GDP than occurred last quarter.
GDP fell by a total of 10.1% in the first six months of 2020 and remains down 3.5% compared to the end of 2019. In 1932, the worst year for GDP during the Great Depression, it fell by 12.9%. Between 1929 and 1933, total GDP decline was 26.3%. In the most recent recession, GDP fell by 3.9% between the end of 2007 and the second quarter of 2009.
When it comes to other economic indicators, Americans spent 9.8% and 8.5% more, respectively, on goods and services last quarter compared to the previous one. Spending on goods is up 6.8% compared to the final quarter of 2019, largely due to increased spending on durable goods — up 7.9% for cars and vehicle parts, 9.2% for furniture, and 21.3% for recreational vehicles and equipment.
Meanwhile, spending on services is still down compared to pre-pandemic levels as social distancing and remote work continue. Recreation services, transportation services, and food services and accommodations all reported a decline of at least 19%.
Government consumption and investment declined by 1.1% in the third quarter as many provisions of the $2 trillion CARES Act expired, including the Paycheck Protection Program and additional unemployment insurance — but federal spending is still up by 2.6% compared to the end of 2019. At the same time, state and local spending is down by 1.9% relative to last year.
Exports increased by 12.4% while imports increased by 17.6% this past quarter, although both remain down compared to the final quarter of 2019.
The BEA reports GDP on an annual and quarterly basis both as current-dollar amounts and inflation-adjusted to 2012 dollars. This latter, official calculation is treated as "real GDP" and is the basis for all reported percent changes in GDP on a year-over-year or quarter-over-quarter basis.