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October 2021

Recovery Slows in Third Quarter

Real GDP grew at just 2% in the third quarter, after consecutive quarters of more than 6% growth.  New data released from the BEA confirms that the Delta variant of COVID-19 significantly slowed the return to normal economic growth.  The Figure below compares real GDP with a trend line based on growth since 2010.


As a recap, shutdowns in early 2020 led to a 5% drop in the first quarter and then a 31% drop in the second quarter.  Then, as many businesses adapted, the recovery began with a whopping 33.8% growth of real GDP in the third quarter.  The first two quarters of 2021 yielded 6.3 and 6.7 percent growth as vaccine availability expanded.  But the Delta variant clearly slowed the progress back toward trend, leading to just 2% real GDP growth in the most recent quarter.

Like everyone else, economists are hopeful that the recent decline in COVID-19 cases will help return us to pre-pandemic economic conditions, but 2% growth will not accomplish that.

Jobs Growth Slows Even as Unemployment Falls

The latest jobs report from the BLS is one of those weird times when the unemployment rate falls even while the overall report is not positive.  All of this stems from this strange and uneven recovery from the COVID-19 recession in 2020.  

Let's start with the good.  The graph below shows the unemployment rate over the past 5 years.  The latest data shows a 0.4% drop to just 4.8% in September.  Normally, this would be heralded as great news.


Now, let's look at jobs growth by graphing total nonfarm employment.  In September, nonfarm employment rose by 194,000.  This would often be considered solid growth.  But right now, we are recovering from a drastic drop in overall employment.  Given the plunge in total jobs in 2020, this level of growth is just not enough to get us back to a healthy level of jobs anytime soon.  In the graph below, you can see that jobs growth is slowing and that we still have 5 million jobs to add before we are back to the pre-pandemic level of employment.


Students might wonder how such a significant drop in the unemployment rate can be viewed as anything but great news.  It can help to show the labor force participation rate (LFPR).  In September, the LFPR actually fell, from 61.7% to 61.6% (see graph below).  This is especially concerning as we are recovering from the huge drop in employment and firms are struggling to find workers. 


It's always good for the unemployment rate to drop 0.4 percentage points.  This means that people who are actively looking for work are having an easier time securing a new job.  But it is hard to rejoice in this economy right now with so many sitting on the sidelines and employers having difficulty luring them into the labor market.  It will be interesting to follow these trends over the next few months.

GDP Grows at 6.7% in Second Quarter

The U.S. economy continues to climb out of the COVID-induced recession of 2020.  The latest GDP data, released yesterday by the BEA, revised the real GDP growth estimate for the second quarter up to 6.7%. 


In normal times, 6.7% real GDP growth is phenomenal.  But now, 6.7% doesn't even get us all the way back to the Pre-COVID trend.  Of course, the main culprits continue to be the Delta variant and also supply-chain issues that remain unresolved.  This Washington Post article is a good resource for an overview of some remaining supply chain issues.