There is nothing normal about the 2020 recession. Massive nationwide shutdowns of "non-essential" businesses caused real GDP to drop at a 31.4% annual rate in the second quarter, the biggest drop since the 1930s. However, as we expected, a V-shaped recovery is being traced out.

On October 29th, in ten days, we expect a report that says third quarter real GDP rebounded at a 33.4% annual rate.



We may make some minor adjustments to this forecast when new reports on business investment, inventories, and international trade are released, but the third quarter will still be one of the largest jumps in output the US has ever experienced.

It's important to keep in mind that even this huge V-shaped bounce will leave Q3 real GDP 2.9% lower than it was a year ago. Without the shutdowns, the US would have grown 2.5% versus a year ago. This means the economy will be about 5.3% smaller than it would have been in the absence of COVID-19.

And even with above-trend growth in the year ahead (say 4.5%, annually), the fact that many industries remain highly restricted, while many businesses have declared bankruptcy, means that the 5.3% gap will take time to close. Without full re-opening, the economy will likely take until 2023 to get back to where it would have been otherwise. If we do re-open, and don't shutdown again, it would happen faster.

That said, the sharp rebound in Q3 is a testament to the underlying strength of the US economy before the shutdowns happened, combined with the seemingly unlimited ingenuity of American people. Twenty years ago, without the technology we have today, there is no way the US could have rebounded as quickly as it did in the third quarter. Moreover, the US entered this government-mandated recession with the highest incomes and lowest poverty rate we have ever recorded.