The US economy may have grown a lot in the third quarter,
recouping much of the decline from the early months of the pandemic, but
personal income dropped, highlighting the challenging financial situation for
millions of Americans ahead of the election on Tuesday.
The latest report from the US Bureau of Economic Analysis
(BEA) shows gross domestic product grew at a seasonally adjusted annual rate of
33.1%, or 7.4% between the second and third quarter of this year. However,
personal income actually fell on the quarter, by more than $540.6 billion, or
2.7%.
Though current levels are still nearly 5% higher than in the
first quarter, it’s only thanks to the government’s stimulus payments such as
the $1,200 checks sent out earlier this year and the weekly $600 unemployment
supplement benefit that expired in July. At this point, it’s unclear when—or
whether—Congress might renew that help.
The drop would have been larger were it not for increases in
income from both regular and self-employment, according to BEA. The pandemic
seems to be spurring a wave of entrepreneurship. New business applications
spiked to more than 1.5 million during the third quarter, according to data
from the US Census Bureau, and small business retailer platform Etsy is adding
45,000 to 50,000 new sellers per week. The company’s third-quarter sales grew
to more than $451 million, a year-over-year increase of more than 128%.
Even with the government assistance payments and this
increase in entrepreneurship, many people drew upon their personal savings to
deal with layoffs, reduced work hours, or remote schooling and childcare
responsibilities. This pulled US personal savings in the third quarter down
about 40% to $2.78 trillion, compared with $4.71 trillion in the second
quarter. The share people saved out of their disposable personal income—known
as the personal savings rate—also fell during the same period, to 15.8% from
25.7%.
Ludovic Subran, chief economist for the German financial
services company Allianz, said the boost from government stimulus programs has
run its course. The lack of spending on discretionary items, along with a lack
of a new stimulus package, could both hurt the economy in the fourth quarter
and affect holiday sales. “Congress must act as moratoriums on evictions will
be ending, consumer delinquencies are piling up, and there are even increased
incidences of hunger,” he wrote.
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