U.S. economic output grew at the fastest pace on record last quarter as businesses began to reopen and customers returned to stores. But the economy has climbed only partway out of its pandemic-induced hole, and progress is slowing.

The gross domestic product grew 7.4 per cent in the third quarter, the Commerce Department said Thursday. The gain, the equivalent of 33.1 per cent on an annualized basis, was by far the biggest since reliable statistics began after World War II; the previous record was a 3.9 per cent quarterly increase in 1950.

Still, the economy in the third quarter remained 3.5 per cent smaller than at the end of 2019, before the pandemic began. By comparison, G.D.P. shrank 4 per cent over the entire year and a half of the Great Recession a decade ago.

The report was the last major piece of economic data before the presidential election on Tuesday. Even before the release, President Trump touted the prospect of a big gain as evidence that the economy had roared back to life after the spring’s pandemic-induced shutdowns.

But economists said the third-quarter figures revealed less about the strength of the recovery than about the severity of the collapse that preceded it. G.D.P. fell 1.3 per cent in the first quarter and 9 per cent in the second as the pandemic forced widespread business closures. A big rebound was inevitable once the economy began to reopen. The challenge is what comes next.

“The reason we had such a big bounce is that the economy went from closed to partially open,” said Michelle Meyer, head of U.S. economics at Bank of America. “The easy growth was exhausted, and now the hard work has to be done in terms of fully healing.”

Already, there are signs that the recovery is losing steam. Industrial production fell in September and job growth has cooled, even as a growing list of major corporations have announced new rounds of large-scale layoffs and furloughs. Most economists expect the slowdown to worsen in the final three months of the year as virus cases rise and federal aid to households and businesses fades.

“We’re having a record recovery, but it comes after an even more record collapse, and it looks like economic momentum is fading in the fourth quarter,” said Jim O’Sullivan, chief U.S. macro strategist for TD Securities.

Courtesy – The NewYork Times