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Economy grew at record pace in third quarter, but pandemic still poses challenges

FILE - In this Sept. 2, 2020 file photo, a customer wears a face mask as they carry their order past a now hiring sign at an eatery in Richardson, Texas. The number of Americans seeking unemployment benefits fell last week to 751,000, the lowest since March, but it's still historically high and indicates the viral pandemic is still forcing many employers to cut jobs. (AP Photo/LM Otero, File)
FILE - In this Sept. 2, 2020 file photo, a customer wears a face mask as they carry their order past a now hiring sign at an eatery in Richardson, Texas. The number of Americans seeking unemployment benefits fell last week to 751,000, the lowest since March, but it's still historically high and indicates the viral pandemic is still forcing many employers to cut jobs. (AP Photo/LM Otero, File)
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President Donald Trump touted record economic growth for the third quarter of 2020 Thursday, but experts say the topline numbers do not necessarily reflect the reality many Americans face and the strong economic data might not sway those who have soured on his response to the coronavirus pandemic.

“GDP number just announced. Biggest and Best in the History of our Country, and not even close,” Trump tweeted before heading out to campaign events in Florida. “Next year will be FANTASTIC!!! However, Sleepy Joe Biden and his proposed record setting tax increase, would kill it all. So glad this great GDP number came out before November 3rd.”

Data released by the Bureau of Economic Analysis showed the U.S. economy grew at an annualized rate of 33.1% between July and September after contracting at an annualized rate of 31.4% in the second quarter. A significant rebound was always expected after states began lifting coronavirus lockdowns, but Thursday’s numbers still exceeded most projections.

“The increase in real GDP reflected increases in personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, and residential fixed investment that were partly offset by decreases in federal government spending (reflecting fewer fees paid to administer the Paycheck Protection Program loans) and state and local government spending,” the BEA said in a statement.

Still, economists warned the economy remains far below its pre-pandemic strength, and there are already signs growth is slowing. With coronavirus cases rising in much of the country, the prospect of another national wave of infections and new restrictions on activity to contain it could further dampen the recovery.

“Reminder that if you go down 33% and up 33%, you’re still down 11%,” tweeted entrepreneur and former Democratic presidential candidate Andrew Yang.

Regaining that remaining 11% could be a long, steep climb. The burst of economic activity that came with reopening nonessential businesses over the summer has leveled off, and restaurants and stores in many states are still operating at partial capacity heading into the winter with the future mired in uncertainty.

“The GDP numbers seem to reflect that we’ve recovered the ‘easy’ part of economic activity,” said John Horn, a professor of practice in economics at Washington University in St. Louis. “The challenge will be finishing the last part to get back to where we were pre-COVID.”

Daniel Alpert, an investment banker and adjunct professor at Cornell Law School, cautioned the economic hole the country is in could get deeper. Long-term unemployment is rising, unpaid household and commercial rents are accruing, loans are going into default, and malls and hotels have been underutilized for months. Stimulus programs and moratoriums on evictions and foreclosures have limited the fallout so far, but those reprieves will not last forever.

“All of this constitutes a sort of slow-moving oncoming freight train that you know is out there,” Alpert said.

Nevertheless, the president’s reelection campaign struck a tone of optimism for the economic outlook in a second term. Trump has promised more tax cuts and more deregulation if reelected and has maintained further lockdowns would do more harm than good.

“This record economic growth is absolute validation of President Trump’s policies which create jobs and opportunities for Americans in every corner of the country. The president built the world’s best economy once and he’s rapidly doing it again,” said Trump 2020 spokesman Tim Murtaugh, insisting Democratic nominee former Vice President Joe Biden’s economic and environmental policies would kill the recovery and spur a depression.

Democrats questioned the Trump campaign taking a victory lap when payrolls are still down by 11 million workers from pre-pandemic levels, 750,000 new unemployment claims were filed last week, and millions of families are struggling without new stimulus from Washington. Biden slammed the “K-shaped” recovery that has left many Americans behind and vowed to take immediate steps to provide economic relief and contain the virus if elected.

“President Trump is on track to be the first president since Herbert Hoover to leave office with fewer jobs than when he came into office. And, with today’s report, we are still on track to have the worst economic downturn in more than 70 years,” Biden said in a statement. “The American people deserve a president who will lead us out of this crisis.”

The former vice president alleged Trump’s failure to effectively fight the pandemic is standing in the way of an economic recovery. As Trump rails against states that have maintained social distancing restrictions, experts say the president is wrong to frame the issue as a debate between boosting the economy and controlling the outbreak.

“Controlling the virus and having good economic growth go together,” said Christopher Way, an expert on political economy at Cornell University. “They aren’t choices. Doing well with the virus means doing well with the economy, and vice versa.”

Even after restrictions were eased over the summer, Americans have been reluctant to resume normal activities until they can do so without risk of contracting the virus. Many schools are also still operating virtually or on hybrid schedules due to high rates of infection in their communities, making it difficult for some parents to return to work.

“The government can’t force individuals to go to restaurants and hair salons and gyms and other businesses,” Horn said. “Consumers have to choose to go. As long as there is a sizable portion of the population that chooses not to engage as fully in the economy as pre-COVID, it will be hard for the economy to fully recover.”

The release of the third-quarter gross domestic product estimate comes just five days before Election Day as Trump faces daunting odds to pull off a repeat of his unexpected 2016 victory. Biden leads by wide margins in national polls and holds an advantage in most recent battleground state surveys, and news of record economic growth could prove to be too little, too late to salvage the president’s reelection campaign.

As of Thursday morning, nearly 80 million votes had already been cast in the 2020 election, about 57% of the total ballots counted in 2016, and polls suggest most who are waiting until Election Day to vote are already Trump supporters. The pool of persuadable voters is much smaller in this election than the last cycle, and one more positive economic data point is unlikely to alter voters’ assessments of the president’s performance.

“If this were a normal year, the distance between good news Thursday and voting the following Tuesday could well be decisive,” said Ross Baker, a political science professor at Rutgers University and author of “Is Bipartisanship Dead?”

Even without taking into account the surge in early voting and the hardened views of Trump, Way is skeptical late-breaking economic data would matter much. The economy in the first half of an election year typically carries more weight with voters than things that happen in the closing months of a race.

“Voters really interpret these figures through partisan lenses,” he said.

The economy has persistently been Trump’s strongest issue as voters broadly favored Biden to handle the pandemic, health care, foreign policy, immigration, and most other priorities. Recent polls indicate even that advantage is fading, though, with several surveys in October showing Americans trust Biden on the economy as much or more than Trump.

A New York Times/Siena College national poll released last week found voters evenly split on who would manage the economy better, and the large-scale stimulus measures proposed by Democrats are widely popular. The coronavirus pandemic remains a more urgent problem than improving the economy in the eyes of many voters, as well, and disapproval of Trump’s response to that crisis is still high.

“It’s not clear whether individuals are looking at infection trends or economic data more in order to judge what their future prospects look like,” Horn said.

As he barnstorms the country holding multiple rallies a day to fire up supporters in the final days of the campaign, Trump’s closing argument has been muddled by false claims that the pandemic is nearing its end and convoluted tales of Hunter Biden and the “laptop from hell.” Trump has tried to make alleged corruption and self-dealing by Biden’s son a central issue of the campaign, but there is little evidence those attacks have resonated beyond his base.

“They say, talk about your economic success,” Trump said dismissively at a rally Thursday, mocking allies who have urged him to spend less time talking about his opponent’s son.

According to Baker, the president’s Hunter Biden narrative has gotten “mangled in transmission” because he seems to assume people know what he is talking about and most probably do not. Trump might focus more on the economy in the last weekend of the race with fresh data on his side, but those gains could be eclipsed by rising coronavirus numbers.

“Particularly the rise in infections in the upper Midwest and the western states kind of neutralizes any good information that comes out about the economy,” he said.

Way noted that national economic data painted a fairly rosy picture in 2016, but Trump still won by appealing to voters who were dissatisfied with their local economies and personal financial situations. There is likely to be a similar contrast between rhetoric and reality for those who are still out of work or facing other struggles due to the pandemic.

“When people‘s personal experience is at odds with what they hear in the media, the personal experience trumps the data,” he said.

With the economy still far from a full recovery, businesses closing, workers being laid off, and many Americans grappling with the prospect of long-term unemployment, Trump risks appearing tone-deaf by celebrating GDP numbers that have less immediate impact on their daily lives.

“GDP is almost a kind of metaphysical figure, whereas unemployment figures I think cut closer to the bone,” Baker said.

According to Alpert, the president also must contend with the likelihood that the media will not give the GDP growth the glowing wall-to-wall coverage he probably thinks it deserves. The White House and the campaign will surely continue to hype it in the coming days, but that might not outweigh the negative aspects of the economy many voters experience at home.

“While it might be spun by the administration as a big rebound, by and large, the media’s not giving it the kind of traction that’s going to result in votes,” he said.

Still, Trump’s campaign is doing its best to capitalize on the data, purchasing several Facebook ads that began running days before the GDP report was released boasting of the fastest economic growth in history.

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“America's GDP numbers are HISTORIC, and the American economy is bouncing back FAST!” claimed one ad, which links to a site collecting donations. “Help President Trump NOW and support our HISTORIC economic growth!”

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