Economy is on the rise post-Covid— didn’t produce lasting impacts

Real gross domestic product (GDP) early in the pandemic fell abruptly to 10 percent below its level at the start of the recession — a much steeper decline than the nearly 4 percent drop in the deepest part of the Great Recession. But the recovery and relief legislation enacted in March and April 2020, plus the relaxation in May of some restrictions on economic activity, led to a sharp (though partial) bounce-back in GDP in the third quarter of 2020. Subsequent relief and recovery legislation enacted in December 2020 and early 2021 gave the recovery an added boost. As a result, real (inflation-adjusted) GDP surpassed its pre-recession peak in the second quarter of 2021, just one year after the trough of the recession. Also, the gap between actual GDP and the Congressional Budget Office’s (CBO) February 2023 estimate of potential GDP — the high-employment, maximum sustainable level of GDP — was erased briefly in the fourth quarter of 2021, when GDP grew at a robust 7.0 percent annual rate. (The gap opened again slightly in 2022 as actual GDP grew more slowly than potential GDP; actual GDP was 1.0 percent lower than potential in preliminary data for the first quarter of 2023.) In the Great Recession, in contrast, GDP didn’t surpass its previous peak for two years and the gap between actual and potential GDP was larger than the first quarter of 2023’s 1.0 percent until the second quarter of 2018, more than eight years after the recession ended. After falling modestly in the first half of 2022, GDP grew at a 3.2 percent annual rate in the third quarter and at a 2.6 percent annual rate in the fourth. GDP in the fourth quarter was 0.9 percent higher than in the fourth quarter of 2021. Growth slowed in the first quarter of 2023 to 1.3 percent at an annual rate as the Federal Reserve Gross domestic income (GDI), which is conceptually equivalent to GDP but estimated from different source data (see note), fell at an annual rate of 3.3 percent in the fourth quarter of 2022 after rising 2.8 percent in the third. The average of GDP and GDI fell at an annual rate of 0.4 percent in the fourth quarter of 2022 and was 0.4 percent higher than in the fourth quarter of 2021. GDI for the first quarter of 2023 fell 2.3 percent at an annual rate in preliminary data, and the average of GDP and GDI fell 0.5 percent. (Note: GDP and GDI measure the same aggregate economic activity: GDP uses the value of the goods and services produced, while GDI uses the income earned in producing those goods and services. Because they are measured with different source data, there is a statistical discrepancy between them due to measurement errors in estimating their components. Averaging the two may give a more accurate picture of economic growth than either alone does, but it is difficult to identify the source or sources of the measurement errors.)