We Look for 6% GDP Growth in 4Q

The U.S. economy soared at a 33.1% annual rate in 3Q20, rebounding from a 31.4% annualized drop in 2Q20 and a 5.0% annualized slide in 1Q20. The numbers are a bit hard to grasp, reflecting the unique approach of the U.S. Bureau of Economic Analysis. Using simple math (going from absolute GDP level quarter-to-quarter, instead of annualizing) we note that the value of U.S. GDP in 3Q20 of $21.157 trillion was 8.4% higher than the $19.52 trillion value in 2Q20. That 2Q20 value was 9.5% lower than the 1Q20 value of $21.56 trillion. The high-water mark for U.S. GDP was $21.75 trillion in 4Q19. So the current GDP, which grew both 33% and 8% in 3Q, is still about 3% below the pre-pandemic level. In our view, 3Q20 represents a substantial (but not complete) recovery in GDP, and we think the numbers are going to improve. How rapidly that happens depends on the health of the country. Right now, as another wave of COVID-19 strikes many regions of the U.S., the outlook for a continued sharp recovery is at risk. Our forecasts call for a 1.5% increase in absolute GDP in 4Q from 3Q, which translates in our model to an annualized gain of 6.0%. We expect further absolute improvement into 1H21, before the economy stabilizes near pre-pandemic levels in 2H21. Our GDP model now calls for overall GDP growth of 1% in 2020 and 3.6% in 2021.