The U.S. economy has been hit by its worst quarter on record after reporting a GDP drop of more than 32.9%.
The impact of the pandemic is clear to be seen, as the record-setting 32.9% drop in GDP drags the US economy’s chances of the quick recovery that President Trump has mentioned.
The US Commerce Department released the figures overnight, with the previous record for a GNP – gross national product – contraction set in Q2 of 1921, with a 28.6% contraction, with records stretching back to 1882.
The previous record for the biggest GDP record, however, was set in Q1 of 1958, where the U.S. recorded a 10% drop in its gross domestic product figure. The second-quarter of 2020 has smashed the record by more than three-times.
The drop was preceded by a 5% fall in GDP in the first quarter of 2020, and puts the U.S. economy in a recession, ending 11-years of consecutive growth.
The U.S. BEA estimates that current-dollar GDP dropped by more than 34.3 per cent, or $2.15 trillion in the second-quarter of 2020 to $19.41 trillion.
In Q1 of 2020, GDP decreased by 3.4%, roughly $186.3 billion.
Consumer spending has taken a dive in recent months, which, according to economists accounts for around 70% of the economy’s activity. Spending was down 34% annually, as retail and restaurants closed, travel stopped and a number of government restrictions and shutdowns hit the U.S.
This was compounded by the U.S. Labor Department earlier this week releasing its numbers, detailing an additional 1.43 million Americans filing for state unemployment benefits last week alone.
Mark Zandi, chief economist at Moody’s Analytics has told CNBC that the release of GDP figures “just highlights how deep and dark the hole is that the economy cratered into into 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,” he said.
The U.S. Bureau of Economic Analysis has said that “the decline in second quarter GDP reflected the response to COVID-19, as ‘stay at home’ orders issued in March and April were partially lifted in some areas of the country in May and June, and the government pandemic assistance payments were distributed to households and businesses.”
The BEA goes on to explain that “the decrease in real GDP reflected decreases in personal consumption expenditures, exports, private inventory investment, nonresidential fixed investment and state and local government spending that were partly offset by an increase in federal government spending.”
Peter Boockvar, chief investment officer at the Bleakley Advisory Group has told CNBC that “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.”