Record GDP Numbers Need Context: Good news, but More to Do

Most of the talk about today’s GDP numbers will be related to the election. It shouldn’t. Presidents don’t run the economy; hundreds of millions of ordinary people do. Fortunately, the news is pretty good. Economic activity is most of the way back to pre-pandemic levels, but not all the way. Policy makers can help the momentum by continuing to waive never-needed regulations that are blocking opportunities for workers and entrepreneurs who are still finding new ways to adapt to life under COVID.

There are two GDP numbers being bandied about today: 33.1 percent and 7.4 percent. The 33.1 percent figure is how much the economy would grow if the third quarter’s pace were to continue for a full year. This is the annualized number, and it will almost certainly not happen. While the annualized 33.1 percent number has its uses, it is easy to use in a misleading way. Readers should be wary of people cheerleading it as a new record. While technically true, the record doesn’t mean much. The economy is still slightly smaller than it was a year ago.

There was a similar confusion surrounding last quarter’s 31.4 percent drop, which set its own record as the worst ever. Again, that was the full-year projected pace at that quarter’s growth rate. It is not even close to what actually happened. The very next quarter had record growth and canceled out most of it.

The 7.4 percent number is the more realistic number to use, though the same caveat applies about its record status. This is how much the economy grew since the previous quarter. Since 7.4 percent growth happened right after a 7.2 percent drop, it means the economy is almost back where it was in 2020’s first quarter, when the pandemic began. Yet, it is not quite all the way back, because the 7.4 increase started from a smaller baseline than the second quarter’s 7.2 percent decline did.

Today’s good news is welcome, but it doesn’t mean the economy is going gangbusters. Businesses that have difficulty with physical distancing will continue to struggle. These include restaurants, retailers, travel, tourism, and live entertainment. Their employees will struggle as well.

Policy makers can help by continuing to find and remove never-needed regulations that block people from adapting to new circumstances and starting new businesses and by reforming system-level processes that keep pumping out harmful regulations.

For ideas on which never-needed regulations to reform, see neverneeded.cei.org.