With a contraction of 9.5% from last quarter, or 32.9% on an annualized rate, the second-quarter gross domestic product loss of the United States was the worst in the nation’s recorded history.
It’s also marginally less egregious than expert estimates of a 34.5% annualized loss from the evening before the Bureau of Economic Analysis’s release and markedly less so than the Congressional Budget Office’s springtime estimate of a 36.9% contraction.
Even so, jobless claims have increased for a second week in a row, indicating that although we have transitioned to a recovery, it’s slowed off some from its June momentum.
The BEA report clearly illustrates an economy not only struck by a lack of demand but by the government-imposed shutdown. In terms of annualized rates, personal consumption expenditures on goods only fell by 11%, but by 23% on services. That’s a 1.8% decrease on goods from last quarter and a 14.7% decrease on services from last quarter.
Business and personal investments plummeted, with a staggering 43.5% annualized rate decrease, or a 10.9% decrease from last quarter, on non-defense federal spending softening the blow of the shutdown. (Whereas decreased demand for goods only contributed to 2% of our GDP contraction, service consumption contributed to nearly a quarter, a plurality coming from the shutdown of the healthcare industry.)
Predictably, the nation suffered its first quarter of deflation since 2009, with our PCE price index falling by 1.9%. The flip side to our deflation? Nominal losses are actually slightly worse than our real GDP contraction.
One thing is certain: The pressure will be on for lawmakers to extend government benefits, especially the small business loan program that’s led to temporarily unemployed workers to regain their jobs en masse as permanently unemployed workers (mainly those from businesses that didn’t obtain PPP or are permanently shutting down) still fail to find employment. Personal income actually markedly rose despite the broader economic losses, in large part because of pandemic-specific government assistance, including the unemployment program that the Trump administration is seeking to slash.
The worst is probably over, but the magnitude of this depth won’t be determined by a second-quarter snapshot of the shutdown, but whether our third-quarter growth indicates an immediate and steep rebound or a slow crawl back to 2019 levels. It’ll only get better from here, but now, the real stakes are to come.
