Grim GDP numbers to be revealed
The unprecedented collapse the U.S. economy suffered in the second quarter as the COVID-19 pandemic gripped the nation is expected to be laid bare today, with a report projected to show a record 35% annualized drop in gross domestic product.
As states shut down restaurants, stores, factories and other businesses to contain the virus’ spread, nearly every corner of the economy was hammered, analysts say, including consumer spending, business investment, housing, trade and government outlays. Gross domestic product represents all goods and services produced.
“Really, you’re going to see just godawful numbers just across the board,” said Scott Anderson, chief economist of Bank of the West.
The nation’s steepest-ever recession is also expected to be the shortest, with job growth, consumer spending and other key measures bouncing back sharply in May and June after bottoming in April as states began allowing businesses to reopen in phases and many employees were rehired.
But spikes in coronavirus cases across much of South and West have prompted at least 20 states to pause or roll back reopening plans, dampening the anticipated recovery in the
second half of the year.
Some economists cite growing risks of the nation slipping back into recession later this year. The Federal Reserve, which concluded a two-day meeting Wednesday, was expected to keep its key interest rate near zero.
Although the grisly numbers in the April-June period were long expected, a figure on Thursday that’s noticeably better or worse than the median 35% decline predicted by economists polled by Bloomberg could shed light on the length of the recovery.
“The magnitude of the decline will tell us about the size of the hill the economy needs to climb to get back to preCovid levels,” said Jonathan Millar, deputy chief U.S. economist at Barclays.
Anderson, however, notes that the figures are so large that they could be subject to substantial revisions.
Consumer buying, which makes up about 70% of economic activity, is likely to account for much of the second-quarter free fall as state shutdowns and Americans’ contagion fears prompted them to tighten wallets. Anderson expects a 36% plunge in consumption.
Business investment, he figures, tumbled 32% as companies reined in spending on new equipment and structures amid factory closures and widespread uncertainty about the outbreak’s economic effects. And instead of adding to their stockpiles, firms likely drew down inventories to meet whatever demand existed, lopping 3.6 percentage points off annualized GDP, Wells Fargo estimates.
Housing construction and renovation offered a bright spot during the economy’s 5% first-quarter contraction as a result of historically low mortgage rates, but the sector won’t be spared in the April-June period, experts said. Construction delays and the tendency of home buyers to stay on the sidelines in the early days of the pandemic probably led to a sharp pullback in residential investment.