Aid and quick reopening explain US resumption strength

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The strength of the economic recovery of U.S it has consistently surprised in recent months, thanks in part to stable consumer finances, supported by generous government aid and extremely low interest rates.

Three months ago, economists had forecast annualized growth of 18% in the third quarter. Bloomberg’s most recent survey now shows a median projection that is almost double the previous – a record 31.8% pace – for the report to be released on Thursday.

Even with such a significant quarterly improvement, the economy still has a long way to recover, as the value of GDP will remain below the previous peak of $ 21.7 trillion at the end of 2019. Unemployment is more than double levels pre-crisis, and covid-19 is expected to limit growth for months and possibly years.

A confluence of factors, however, helps to explain why economists have underestimated the recovery so far. To begin with, in some states the business shutdown caused by covid was suspended in weeks instead of months, allowing for a quick resumption of retail sales.

The government’s response – particularly by sending many $ 1,200 stimulus checks in April and adding $ 600 a week to unemployment insurance for several months – was also critical and may have been more effective than initially estimated. In addition, American households saved more, as income growth exceeded spending, even discounting government aid.

In addition, rapid changes in the economy have encouraged analysts to increasingly rely on data from so-called high-frequency indicators, such as restaurant reservations and cell phone movements. This allowed a more real-time image of the recovery, but it also made the forecast more complicated for analysts used to computer models that incorporate traditional indicators.

Total retailer revenue is well above pre-pandemic levels, while initial construction of single-family homes and home sales are the highest in over 13 years. Regional manufacturing data shows that orders continue to rise, partly because inventories have fallen.

Mortgage interest at historic lows drives demand in the housing market, but there has also been a shift in Americans’ preferences – who have left city centers in favor of more distant districts and more spacious homes, which can also serve as personal office spaces.

“People were not optimistic enough about consumption,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, which now sees 34.1% growth in the third quarter, after projecting 18% in April. “There was much concern that the fiscal stimulus in the spring would temporarily boost consumption and that, as soon as this cash flow was stopped, the consumer would stop spending.”

However, the economy should return to a more moderate growth rate until the end of the year. The increase in coronavirus cases and the prolonged stalemate over new stimuli threaten to limit further gains, while the timing and effectiveness of vaccines against covid-19 remain uncertain.

Source: Exame

The strength of the economic recovery of U.S it has consistently surprised in recent months, thanks in part to stable consumer finances, supported by generous government aid and extremely low interest rates.

Three months ago, economists had forecast annualized growth of 18% in the third quarter. Bloomberg’s most recent survey now shows a median projection that is almost double the previous – a record 31.8% pace – for the report to be released on Thursday.

Even with such a significant quarterly improvement, the economy still has a long way to recover, as the value of GDP will remain below the previous peak of $ 21.7 trillion at the end of 2019. Unemployment is more than double levels pre-crisis, and covid-19 is expected to limit growth for months and possibly years.

A confluence of factors, however, helps to explain why economists have underestimated the recovery so far. To begin with, in some states the business shutdown caused by covid was suspended in weeks instead of months, allowing for a quick resumption of retail sales.

The government’s response – particularly by sending many $ 1,200 stimulus checks in April and adding $ 600 a week to unemployment insurance for several months – was also critical and may have been more effective than initially estimated. In addition, American households saved more, as income growth exceeded spending, even discounting government aid.

In addition, rapid changes in the economy have encouraged analysts to increasingly rely on data from so-called high-frequency indicators, such as restaurant reservations and cell phone movements. This allowed a more real-time image of the recovery, but it also made the forecast more complicated for analysts used to computer models that incorporate traditional indicators.

Total retailer revenue is well above pre-pandemic levels, while initial construction of single-family homes and home sales are the highest in over 13 years. Regional manufacturing data shows that orders continue to rise, partly because inventories have fallen.

Mortgage interest at historic lows drives demand in the housing market, but there has also been a shift in Americans’ preferences – who have left city centers in favor of more distant districts and more spacious homes, which can also serve as personal office spaces.

“People were not optimistic enough about consumption,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, which now sees 34.1% growth in the third quarter, after projecting 18% in April. “There was much concern that the fiscal stimulus in the spring would temporarily boost consumption and that, as soon as this cash flow was stopped, the consumer would stop spending.”

However, the economy should return to a more moderate growth rate until the end of the year. The increase in coronavirus cases and the prolonged stalemate over new stimuli threaten to limit further gains, while the timing and effectiveness of vaccines against covid-19 remain uncertain.

Source: Exame

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