U.S. GDP Plunged 32.9%!

The U.S. economy suffered its worst period ever in the second quarter, with GDP falling a historic 32.9%. Neither the Great Depression nor the Great Recession nor any other slump over the past two centuries have ever caused such a sharp drain on the economy.

Image: https://moneyandmarkets.com

Gross domestic product from April to June plunged 32.9% on an annualized basis, according to the Commerce Department. Economists surveyed by Dow Jones had been looking for a drop of 34.7%. The closest previously coming in mid-1921. 

Sharp contractions in personal consumption, exports, inventories, investment and spending by state and local governments converged to bring down GDP. Personal consumption, which historically has accounted for about two-thirds of all activity in the U.S. dropped 25%, with services accounting for nearly all that drop. 

For all the talk of a V-, W- or U-shaped recovery, Sung Won Sohn, professor of finance and economics at Loyola Marymount University and president of SS Economics, said a “Y-shaped,” or “sideways,” expansion is in progress.

“The pandemic has created winners (top portion of Y sideways) and losers (bottom portion of Y sideways) widening the economic cleavage in the economy,” Sohn wrote.

There are new signs the economic recovery is faltering, and Powell, the Fed’s Chairman, has noted that rising coronavirus cases are beginning to weigh on the economy. Powell said some measures of consumer spending, based on debit card and credit card use, have moved down in the past month. Hotel occupancy rates have flattened out, he said, and Americans are not going to restaurants, gas stations and beauty salons as much as they had been earlier in the summer, as CNBC reports.

“On balance, it looks like the data are pointing to a slowing in the pace of the recovery,” Powell said “I want to stress it’s too early to say both how large that is and how sustained it will be.”

References:

1. Second-quarter GDP Plunged by Worst-ever 32.9% amid Virus-induced Shutdown, Jeff Cox, Jul 30, 2020 (www.cnbc.com)

2. U.S. Economy Contracted at Fastest Quarterly Rate on Record from April to June as Coronavirus Walloped Workers, Businesses, Rachel Siegel and Andrew Van Dam, July 31, 2020 (www.washingtonpost.com)