KEY POINTS

  • The U.S. economy plunged by an unprecedented 32.9% in the second quarter
  • Gross domestic product decreased by 5% in the first quarter.
  • The worst previous GDP decline was 10% which was recorded in the first quarter of 1958.

The U.S. economy plunged by an unprecedented 32.9% in the second quarter as the COVID-19 pandemic and related shutdown hammered business activity.

The Bureau of Economic Analysis noted that gross domestic product decreased by 5% in the first quarter.

Before this quarter, the worst GDP decline was 10%, which was recorded in the first quarter of 1958.

Economists surveyed by Dow Jones were projecting a decline of 34.7%.

The BEA attributed the massive decline in second quarter 2020 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 government pandemic assistance payments were distributed to households and businesses. This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending.”

The Bureau also said the plunge in GDP reflected declines in personal consumption expenditures, exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending.

The decrease in PCE, the bureau noted, reflected “decreases in services  (led by healthcare) and goods (led by clothing and footwear).”

Before the release of the GDP report, Ian Shepherdson, chief economist for Pantheon Macroeconomics, said: “In contrast to prior recessions, where plunging investment and inventories have usually been the biggest drivers, the coronavirus downturn has been mainly the result of an unprecedented collapse in consumption as lockdown measures imposed in late March forced consumers to stay at home.”

Heather Long, economics correspondent at the Washington Post, tweeted after the GDP numbers were released: “This is the result of the Great Lockdown. It was done to fight the coronavirus, but at a great cost.”

She added: “Business investment plummeted. Consumer spending on services plummeted. [Government] spending was one of the only positives in the quarter.”

Bankrate.com chief financial analyst, Greg McBride, commented: “It was an epically bad second quarter and we got our first look at just how bad… The economy continues to set records for all the wrong reasons.”

McBride added: “Negative-32.9% is what will be in all the headlines but the economy didn’t shrink 32.9% in the second quarter. The actual contraction was 9.5% – still epically bad - which if continued for an entire year would be 32.9%. It’s like projecting a ballplayer that hits 3 home runs on opening day will maintain that pace the whole season.”

Josh Lipsky, director of programs and policy at the Atlantic Council's global business & economics program, said: "Today’s GDP report is a wake-up call to a Congress considering sending Americans over a fiscal cliff… The American economy has never had to climb out of such a deep hole and it will be impossible to do so without immediate help.”