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GDP Plunged Worst-Ever 32.9% In Q2

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GDP Plunged Worst-Ever 32.9% In Q2

The US economy, battered by the coronavirus pandemic, saw GDP output drop 32.9% during the second quarter.

That’s the biggest slowdown in economic activity ever, yet it was slightly better than the 34.7% drop that was expected.

The drop in activity came as millions of Americans lost their jobs, stores and businesses closed. Stay-at-home orders going into effect also played a role in it.

Responsible Factors

Personal consumption, which historically makes up about two-thirds of our economy, accounted for 25% of the overall drop in GDP.

“This is the largest decline in 70 years of quarterly data,” said Diane Swonk, chief economist at Grant Thornton. There is no data from the Great Depression. However, the other steep declines in economic activity were a 10% drop in 1958, 8% in the first quarter of 1980, and the 8.4% drop in the fourth quarter of 2008 during the depths of the financial crisis.

The market has been preparing for a huge loss. However, it doesn’t take away the significance of the report. Michael Gapen, chief U.S. economist at Barclays, says: “None of that is new news and markets have been expecting a catastrophic dive in Q2 GDP. Really it just tells you how deep the hole was so you know how far you have to go to climb out of it. …70% of the economy is consumption.”

Shocking Yet Expected

Peter Boockvar, chief investment officer at the Bleakley Advisory Group, says the massive drop is shocking. However, it is what is to be expected from a full economic shutdown.

“Bottom line, the numbers of course are alarming but all self inflicted with about half the quarter reflecting almost full shutdown and the other half the slow reopening. That said, it does reflect the hole out of which we now need to climb out of as we rebound in Q3 and Q4.”

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Mark Zandi, the chief economist at Moody’s Analytics, says the report shows just how hard the virus hit our country. It also reflects all the work we still have to do for a full recovery. He expresses concern that the “v-shaped” recovery many hoped for may not come to pass.

The GDP report shows “how deep and dark the hole is that the economy cratered into in Q2. It’s a very deep and dark hole and we’re coming out of it, but it’s going to take a long time to get out.”

Looking towards the Q3 report, expectations from economists is for a strong rebound if we don’t see a massive resurgence in the virus. The CNBC/Moody’s Analytics survey expects an increase of 16.4% in third-quarter GDP.

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