Historic Drop in GDP – August 3, 2020

GDP, or Gross Domestic Product, is the largest measure of the value of goods and services for the economy. On Thursday, the U.S. BEA reported that Q2 GDP fell at an annualized rate of 32.9%, the largest decline since quarterly records began in 1947.

The drop topped the prior record of a 10% annualized decline in Q1 1958, which was tied to the 1958 Asian flu pandemic.

As the graphic illustrates, Q2’s contraction was historic and far exceeded anything we experienced during the Great Recession of 2007-09. Furthermore, nearly all the drop-off in economic activity last quarter occurred in April.

The economic data have been much better in May and June. But the improvement still leaves us in a deep economic hole, and July has been problematic due to the jump in daily Covid cases.

The recovery

The second quarter is in the rearview mirror. We’ve entered Q3: July – September. Subject to change, the WSJ Economic Forecasting Survey projects a 15.2% annualized increase in Q3 GDP followed by 6.8% advance in Q4.

While the economy has rebounded, visibility remains murky amid an extraordinary amount of uncertainty surrounding the economic outlook. Falling Treasury bond yields imply a more cautious stance. The S&P 500 Index turned positive for the year, which suggests a brighter medium-term outlook.

Last week, Fed Chief Powell acknowledged, “Economic activity picked up as the economy began to reopen.” But he also sees “new challenges,” and said the path forward “will depend in large part on our success in keeping the virus in check.”

A safe and effective vaccine that’s readily available could go a long way in restoring confidence.

Created 2020-08-03 17:37:08