The United States almost certainly just experienced its fastest three months of economic growth on record. That doesn’t mean the economy is strong.
The Commerce Department on Thursday will release its preliminary estimate of economic growth for the third quarter. Economists surveyed by FactSet expect it to show that gross domestic product — the broadest measure of goods and services produced in the United States — grew about 7 percent from the second quarter, or 30 percent on an annualized basis (more about that in a bit).
If those forecasts are even close to correct, it would represent the fastest growth since reliable records began after World War II. Until now, the best quarter was a 3.9 percent gain (16.7 percent annualized) in 1950.
This G.D.P. report will be particularly closely watched, arriving as the last major piece of economic data before Election Day next Tuesday.
But it doesn’t make sense to think about Thursday’s report in isolation. The third quarter’s record-setting growth is effectively an echo of the second quarter’s equally unprecedented contraction, when business shutdowns and stay-at-home orders led gross domestic product to fall by 9 percent. Strong growth was inevitable as the economy began to reopen.
While the economy has revived considerably since last spring, it is far short of its level before the pandemic. And progress is slowing.
“Employment has come back to some extent, but the unemployment rate is still high, wage and salary income is still low,” said Ben Herzon, executive director of IHS Markit, a forecasting firm. “Demand is still being depressed by the pandemic.”
In superlative-laden Facebook ads purchased days before the report, President Trump and his supporters have already begun to promote it as evidence of a strong rebound. The truth is more complicated. Here is how economists are thinking about the report, and why the numbers could be misleading.
The economy is still in a hole.
If G.D.P. fell by 9 percent in the second quarter, and rose by about 7 percent in the third quarter, it might sound as if the economy is almost back to where it started.
It isn’t. The big drop in output in the second quarter means that third-quarter growth is being measured against a smaller base. A simple illustration of the same phenomenon: If you have $100 and lose half, you have $50. If you then manage to increase your money by half, that will bring your holdings to $75, not all the way back to $100.
To really evaluate the recovery, it makes sense to focus less on quarter-to-quarter changes and instead look at how the economy compares to the fourth quarter of last year, before the pandemic began. If economists’ forecasts are correct, G.D.P. will be 3 to 4 percent lower in the third quarter than at the end of last year. By comparison, G.D.P. shrank 4 percent over the entire year and a half of the Great Recession a decade ago.
In other words: Even after the record-setting rebound in the third quarter, the economy is still in a hole as large as the worst point of many past recessions.
Most ‘third-quarter growth’ actually happened in the second quarter.
Here is where things get really confusing: Third-quarter growth will look historically strong, even though all three months that made up the quarter were relatively weak.
That seeming paradox is the result of how the government reports G.D.P. statistics.
Quarterly G.D.P. figures represent the average amount of economic output over a three-month period. In normal times, output changes only gradually — growing or shrinking only 2 or 3 percent per year — so the change from the first month of a quarter to the last is small.
Last spring, however, changes that would ordinarily take years played out in a matter of weeks. Monthly estimates from IHS Markit show that G.D.P. fell more than 5 percent in March and more than 10 percent in April, before rising roughly 5 percent in May and 6 percent in June.
Quarterly averages obscure those big swings, however. G.D.P. fell 1.3 percent in the first quarter (when two relatively normal months were followed by the big drop in March) and 9 percent in the second (when output plunged in the first month of the quarter then rose in the next two).
The big rebound in May and June meant that the third quarter effectively had a head start. In fact, even if there had been zero growth in July, August or September, and the economy had stayed exactly the same size as at the end of the second quarter, that would still represent 5.4 percent quarterly growth — the strongest gain on record.
Recovering Lost Ground
Monthly and quarterly U.S. gross domestic product in 2020
Of course, the economy did experience some growth during the third quarter. IHS Markit estimates that G.D.P. grew about 1.5 percent in July and less than 1 percent in August and September. But those are much weaker gains than the quarterly G.D.P. figures might seem to suggest.
“Statistics that we’re used to using for small and slow movements are basically broken when it comes to looking at large and rapid movements,” said Justin Wolfers, a University of Michigan economist who occasionally contributes to The New York Times. “Typically a recession plays out over many quarters. This one played out over many weeks. So looking at the data through the lens of quarterly data misses all the action.”
Annualized figures are even more misleading.
Gross domestic product in the United States is usually reported at an annual rate, meaning how much output would grow or shrink if that rate of change were sustained for a full year. That convention makes it easier to compare data collected over different time periods. But during periods of rapid change, annual rates can be confusing.
In the second quarter, for example, G.D.P. fell at an annual rate of 31.4 percent. That makes it sound as if the economy shrank by nearly one-third, when in fact it shrank by a bit less than a tenth.
To avoid confusion, in the coverage of Thursday’s report, The Times plans to emphasize simple, nonannual percentage changes from both the second quarter and the fourth quarter of last year, before the pandemic began. (We gave a more detailed explanation of this decision before the second-quarter report in July.)
Benchmarks make a big difference.
When the pandemic first hit last spring, many economists and policymakers hoped that by shutting down nonessential businesses and encouraging people to stay home, the United States could quickly bring the virus under control, then reopen with minimal lasting economic damage. That would allow for a “V-shaped” recession and recovery — a steep drop, followed by an equally steep rebound.
Relative to that expectation, the U.S. response has been a failure. The economy bounced back in May and June, but only partway. Most forecasters don’t expect G.D.P. to return to its pre-pandemic level until late next year at the earliest.
Compared with forecasts from April and May, however, the economic rebound has beaten expectations. The nonpartisan Congressional Budget Office, for example, released a forecast in late April showing a steeper second-quarter decline and a weaker third-quarter rebound than ended up happening. The office also expected the unemployment rate to stay above 10 percent through the end of this year; instead, the rate fell below that benchmark in August, and fell further to 7.9 percent in September.
The bad news is that progress has slowed sharply since that spring rebound. Many economists have recently revised downward their forecasts for the end of the year, in part because Congress did not provide more stimulus money before the election.
“The recovery has been faster than expected, but it is bending off pretty sharply,” Mr. Herzon said. “We got a sharp recovery, but there appears to have been a limit to that recovery.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
