United States: GDP contracts at historic rate in Q2
June 30, 2020
The economy declined at the sharpest rate on record in the second quarter as the pandemic and measures to contain it toppled activity. According to an advanced GDP estimate released by the Bureau of Economic Analysis, the economy contracted 32.9% in Q2 in seasonally-adjusted annualized terms (SAAR), after shrinking 5.0% fall in the previous quarter. In annual terms, GDP plunged a titanic 9.5% in Q2, contrasting the first quarter’s 0.3% growth.
The main headwind in Q2 came from private consumption, which plunged 34.6% SAAR (Q1: -6.9% SAAR). Moreover, the downturn in business investment intensified significantly (Q2: -27.0% SAAR; Q1: -6.7% SAAR) on a marked drop in equipment investment. That said, government consumption growth accelerated in the quarter (Q2: +2.7% SAAR; Q1: +1.3% SAAR).
Turning to the external sector, exports of goods and services dived 64.1% in the second quarter (Q1: -9.5% SAAR), led by a freefall in exports of goods, while imports of goods and services shrank 53.4% (Q1: -15.0% SAAR). The external sector thus contributed 0.7 percentage points to the headline figure (Q1: +1.1 percentage points).
Commenting on the second quarter’s dismal performance, James Marple, a senior economist at TD Economics, noted:
“This was a report unlike any other and hopefully singular in its entry in the history books. The composition of the decline in activity is also unique, coming mainly from the services side of the economy, which typically avoids declining in recessions.”
Author: Steven Burke, Economist