The U.S. economy fell at its fastest pace on record in the second quarter of 2020 as economic activities were canceled or restricted amid the COVID-19 pandemic. The economy will start to bounce back as restrictions are lifted and economic activities increase.
According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) decreased at an annual rate of 32.9% in the second quarter of 2020, following a 5.0% decrease in the first quarter of 2020 and close to NAHB’s forecast of -34.2%. This quarter’s figure marked the second negative growth rate amid the COVID-19 pandemic and it was the worst contraction ever on record, based on BEA data back to 1947. The 5.0% drop in the first quarter of 2020 captured the business shutdown in March, while the second-quarter’s deep drop reflected almost completely shutdown for half of the quarter and the slow reopening for the other half.
The “advance” GDP estimate for the second quarter did not reflect the full economic effects of the COVID-19 pandemic, because “the impacts are generally embedded in source data and cannot be separately identified”, mentioned in the BEA’s statement.
The decrease in real GDP in the second quarter of 2020 reflected decreases in personal consumption expenditures (PCE), which, alone, accounts for about 70 percent of the overall economy, private inventory investment, nonresidential fixed investment, residential fixed investment and exports. Meanwhile, imports, which are a subtraction in the calculation of GDP, decreased.
Consumer spending, the backbone of the U.S. economy, fell at an annual rate of 34.6%. The decline in consumer spending reflected decreases in nondurable goods and services. Nondurable goods spending dropped 15.9% at an annual rate, led by energy goods, clothing and footwear. Expenditures on services decreased 43.5% at an annual rate, mainly reflecting decreases in recreation services, transportation services, food services and accommodations, and health care.
While nonresidential fixed investment declined 27.0%, residential fixed investment (RFI) fell 38.7% in the second quarter, after rising 19.0% in the first quarter of 2020. The decrease in nonresidential fixed investment primarily reflected the big drop in transportation equipment (-85.7%), and the decrease in residential fixed investment primarily reflected a decrease in new single-family housing.
State and local government spending decreased 5.6% at an annual rate, offset by the increase in federal government spending in the second quarter.