Q3 U.S. GDP Growth Set For 30% But No V-Shaped Recovery

· The U.S. economy is set for a sharp rebound in Q3

· The Atlanta Federal Reserve’s GDPNow estimate for Q3 GDP growth is currently running at a stunning 30.7 percent annualized rate (6.9 percent q/q), which is almost 2x the prior highest quarterly GDP print on record, registered in Q1 1950 (Chart 1)

· If the Atlanta’s Fed Q3 estimate comes in, the economy will still only have recovered 60 percent of its COVID loss, with real output 4 percent below its Q4 2019 level (Chart 2)

· The economy appears to be plateauing as concerns of a second wave increase, and the second stimulus package remains uncertain, though it is highly likely something will get done. The massive stimulus has kept the economy afloat.

· Personal income growth is positive y/y due to massive government transfer payments, offsetting the decline in wages and salaries (Chart 3)

· Transfers payments are now about 25 percent of Personal Income, up from 17 percent before the COVID crisis (Chart 4)

· The Federal Reserve’s massive and unprecedented monetary stimulus has generated 20 percent-plus growth in the country’s money supply (M2), which is driving financial markets, boosting confidence, and also likely a significant factor in generating the rise in commodity prices (Chart 5)

· Many industries, such as Air Travel, have not participated in the economic rebound. Passenger count on September 11, for example, was still only 29.4 percent of the same weekday in 2019. There will be winners and losers post COVID. (Chart 6)

The upshot: The U.S. economy has experienced a sharp rebound in Q3 and is currently in a holding pattern waiting on the second stimulus bill and the pandemic to fade. The goods sector is faring relatively well, with services feeling the brunt of the pain. There is still a lot of noise in the economic data and uncertainty about the future, especially concerning the structural economic changes that are taking place due to the COVID crisis. Moreover, it is still too early to tell how much hysteresis or permanent damage has been done to the economy, which will not be insignificant and how long it will take the economy to recover fully. The economic policymakers are committed to doing whatever it takes for the recovery and to keep the economy moving, which is very positive.