Third Quarter Economic Growth

“yeah...but” is the theme of the week.  

Third-quarter economic growth (advance estimate of gross domestic product, GDP) released Thursday showed GDP increased at an annual rate of 33.1% during the third quarter. This was the best growth rate on record; however, this followed the second quarter, which was among the worst on record.   

Annualized rates and percentages can be challenging to interpret at times since one-quarter of data is being projected to a full-year figure. In dollar terms, the US economy was valued at around $22 trillion at the peak in February. GDP estimates currently stand at $21.1 trillion as of the end of the third quarter. To get back to peak levels in the economy, we would need to see an increase of about $900 billion or about 4.25 in percentage terms. Increasing economic activity and surpassing prior peak levels will occur at some point. In the short-term, expected growth is being shadowed by potential economic shutdown/disruption and a high unemployment rate.  

Stock market volatility remained elevated this week, and broad market price declines were in part blamed on third-quarter earnings reports from the technology sector. Technology companies now make up about 28% of the market (S&P 500 index, source: S&P Dow Jones Indices), which means this sector, when it moves, carries lots of weight in the overall results. Participating in the technology sector has rewarded investors for several years; however, we consistently advocate for a diversified portfolio, not relying on any narrow set of investments for long term success. 

Additional Notes 

• 64% of S&P 500 companies have reported third-quarter results (source: Factset, Inc) 

  • Of the companies reporting, 86% surpassed earnings expectations, which is better than average; however, renewed coronavirus concerns have shadowed results 

• Technology giants Apple and Facebook reported third-quarter results late this week, and while results were generally good for the quarter, forward expectations were less constructive, and stock prices were down on the week 

• Amazon also reported good results from the third quarter; however, cited an expected increase in costs related to coronavirus; the stock price was down on the week 

• Consumer spending was strong during the third quarter, in part led by spending on health care, food services, and motor vehicles 

  • Related, Americans’ personal savings rate declined during the quarter to 14.3%, however, remains above the long-term average (source: bea.gov) 

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