December 2020 National Economic Outlook

Record GDP Growth in Third Quarter, But Job Gains Slowing at the End of 2020

Executive Summary

Real GDP increased 33.4% at an annualized rate in the third quarter, by far the strongest growth on record. This does not mean the economy grew by one-third in the third quarter; instead, this means that if the economy maintained this pace of growth for an entire year the economy would be 33.4% larger at the end of that year. On a simple percentage basis growth was 7.5% in the third quarter.

Real GDP is the broadest measure of economic activity; it is output of final goods and services, adjusted for inflation. This record gain in the third quarter followed a record drop of 31.4% annualized in the second quarter (9.0% unannualized), which was on top of a 5.0% annualized decline in the first quarter (1.3% unannualized).

All told, real GDP shrank by 10.1% unannualized between the fourth quarter of 2019 and the second quarter of 2020. Even with the record increase, in the third quarter of 2020 real GDP was still 3.4% smaller than it was in the fourth quarter of 2019. To put this in context, a 3.4% decline in output would be the third-worst U.S. recession since World War II. During the Great Recession of 2007 to 2009, real GDP declined a total of 4.0% over six quarters. (The PNC December forecast was prepared before the last revision to third quarter GDP).

Consumer spending, supported by stimulus efforts, led the third quarter rebound. Fixed business investment was also strong, with all of improvement coming from equipment; investment in structures and in intellectual property (like software and research and development) both fell in the third quarter. Residential fixed investment was also a large contributor to growth as homebuilding rebounded.

The U.S. economy added 245,000 jobs in November, the fifth straight month of slower job growth. The labor market continues to improve, although job growth has slowed dramatically from earlier in the recovery. The U.S. economy lost 22 million jobs in March and April, and has since added back 12 million jobs.

But after adding an average of 2.7 million jobs per month in May through August, job growth has averaged just over 500,000 per month in September through November. The unemployment rate fell to 6.7% in November, from 6.9% in October. After peaking at 14.7% in April, the unemployment rate has fallen for seven straight months, although it remains well above the 3.5% rate before the pandemic in early 2020.

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