September 21, 2020 – Solid economic data in August point toward a historic bounce in third quarter GDP growth as the reopening process continues. Labor market conditions continued to improve, with the economy adding another 1.4 million jobs in the month of August. Even though COVID-19 spikes continue to occur, consumers have started spending again on most items from autos to homes. New single family home sales surged to the highest monthly level since December of 2006 in July. Record low mortgage rates, pent-up demand, and redesigned working arrangements have all led to a strong rebound in new home sales. The pick-up in home sales is expected to help lift consumer spending in the months ahead as consumers begin furnishing their new homes. Outside of the consumer sector, stronger domestic and foreign demand are helping to drive inventory rebuilding and greater business investment, which is expected to rebound as well in the third quarter.
In this month's update, we are now calling for 33 percent annualized growth in the third quarter of this year, followed by a gradual downshift in the pace of GDP growth in the coming quarters. We expect GDP growth will contract by 3.5 percent this year before growing 4.9 percent in 2021. This month also marks the rollout of our 2022 forecast, with a return to the boring quarterly GDP growth rates of 2.5-3.0 percent seen in the prior expansion.