GDP and jobless claims offer latest signs of economic weakness
Gross domestic product plummeted 32.9% in the second quarter on a seasonally adjusted annual basis, the largest decline since 1947, when records were first kept, the Commerce Department said, and an increase in the number of coronavirus cases could threaten a third-quarter recovery.
Economists surveyed by IFR Markets had expected a larger 34.0% contraction.
In the first quarter, GDP fell 5.0%.
“The economy contracted sharply during the second quarter,” said Diane Swonk, chief economist, Grant Thornton. “Our forecast shows a moderate rebound in the third quarter, but that is now being challenged by a resurgence of COVID-19 infections. Change the course of COVID: Change the course of the economy.”
The decline eclipsed the previous record drop of 10% in the first quarter of 1958, she added.
With numbers compiled on a seasonally adjusted annual pace, it “magnified the drop between the first and second quarter, the bulk of which occurred between March and April,” Swonk said. “The economy contracted by 9.5% before being annualized, which is still the worst quarterly contraction on record. April was the weakest month of the quarter. We saw a sharp rebound in employment, spending and production during the months of May and June.”
And, the pain was broadbased, she said. "Consumers and businesses alike pulled back as fears of contagion and state-mandated lockdowns were implemented." The service sector took the biggest hit "with a drop of more than 40% on an annualized basis."
Beyond the data, "The re-emergence of the virus implies the economic recovery following a third quarter recovery bounce, will be gradual despite the unprecedented contraction in economic activity in the second quarter," said Scott Anderson, Chief Economist at Bank of the West. "We are forecasting real GDP to rebound an annualized 18.7% in the third quarter but a return to the pre-recession peak will not occur until late 2022."
“The decrease in real GDP reflected decreases in personal consumption expenditures (PCE), 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. Imports, which are a subtraction in the calculation of GDP, decreased,” the release said.
“It was an epically bad second quarter and we got our first look at just how bad — down 32.9% on an annualized basis, the worst three-month U.S. economic contraction ever recorded,” said Greg McBride, chief financial analyst at Bankrate. “The economy continues to set records for all the wrong reasons.”
“Negative 32.9% is what will be in all the headlines, but the economy didn’t shrink 32.9% in the second quarter,” he explained. “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.”
Initial jobless claims grew for the second week in a row to a seasonally adjusted 1.434 million from the previous week’s upwardly revised level of 1.422 million, originally reported as 1.416 million, the Labor Department reported.
Economists polled by IFR Markets projected 1.400 million claims in the week.
Continuing claims climbed to 17.018 million on the week ended July 18 from 16.151 million a week earlier.