It could have been worse. The 32.9% decline in U.S. gross domestic product for the second quarter is the single largest decline in the report since the collection of the data began in 1947 and since the 8.4% drop during the fourth quarter of 2008, the height of the financial crisis.
The plunge in GDP is the single largest decline in the report since the collection of the data began in 1947.
But the reopening of the economy that begin around May 1 resulted in a far more muted decline that was tracking near 50% in April. And that is about the only good thing that could be said about an absolutely devastating growth report released by the Commerce Department on Thursday.
Still, that premature reopening simply pulled forward activity and resulted in the release of one-time pent-up demand that exhausted itself on or around June 24. The probability of a greater than 20% rebound in the current quarter has declined significantly over the past month, and we think it will not materialize.
Since then, the pandemic has raged out of control and the economy has largely moved sideways over the past six weeks.
Through July 19, U.S. household consumption has declined 6.4% relative to January levels, with upper-income consumers reducing spending by 9.8%, middle-income consumers by 5.3% and lower-income consumers by 2.3%.
The far greater question that must be answered is if there will be a policy error from the fiscal authority that results in the creation of conditions that results in further job losses and another downturn later this year or in early 2021.
The tone of the data implies room for upside revisions for the second quarter of the year as a more comprehensive data picture is obtained. Real final sales declined 29.3%, gross domestic purchases fell 31.8% and final sales to domestic purchasers dropped 28.2%.
Beneath the top-line growth estimate, the data reflected the shutdown of a portion of the domestic economy in April and caution of consumers to resume anything resembling normal social and economic activity.
Personal consumption dropped 34.6%, demand for services declined 43.5% and gross private investment was down 49%. Demand for non-durables fell 15.9%, fixed investment dropped 29.9%, non-residential investment dropped 27%, outlays on structures 34.9%, equipment 37.7% and intellectual property 7.2%. Residential investment dropped 38.7%.
Exports declined by 64.1%, imports fell by 53.4%, and state and local spending dropped 5.4%, while overall government spending increased by 2.7%. Federal spending increased by 17.4%, defense outlays rose by 4.1% and non-defense spending jumped by 39.7%.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.