The U.S. economy backpedalled at an unprecedented pace in the second quarter as the coronavirus pandemic upended the U.S. economy by forcing businesses across the country to close their doors.
The Bureau of Economic Analysis reported Thursday that gross domestic product, which measures the output of the economy, shrank at an annual pace of 32.9% between April and June. Economists polled by FactSet had been expecting the economy to shrink by 34.6%.
Consumption, a key measure of the strength of the economy, drove most of the decline, falling 34.6%, with personal consumption expenditures dropping by 1.1%. The price index, which measures the direction of the prices of goods and services, slipped 1.8%, suggesting deflation took hold during the quarter.
The report provided a grim snapshot of the full impact that widespread disruptions in the U.S. economy caused during the critical second quarter - particularly since responses to the pandemic only began in earnest in the latter part of March.
While shocking, economists were quick to note that the numbers were far more jarring due to the way they were calculated: The BEA tallies up output numbers for the quarter and then annualizes them, which can make them more volatile.
Before the coronavirus pandemic, the largest drop in GDP on record was 10% in 1958. The steepest quarterly drop during the 2007-2009 Great Recession was 8.4%. The government’s quarterly GDP figures go back to 1947.
En-masse closures of businesses and factories and job losses in the tens of millions during the early stages of the pandemic, which rolled on to U.S. shores in mid-March, pummeled consumer spending, which accounts for roughly two-thirds of U.S. economic output.
Business spending, meantime, also fell as companies across the board slashed investment and production amid an abrupt stop in economic activity. Inventories also saw a large drawdown as manufacturers and other companies scaled back production. A decline in the level of inventories also causes GDP to shrink.
One particularly telling number was personal savings, which came in at $4.69 trillion in the second quarter compared with $1.59 trillion in the first quarter.
The rate, which measures savings as a percentage of disposable personal income - was 25.7% in the second quarter, compared with 9.5% in the first quarter, suggesting Americans kept a tight grip on their spending through the pandemic's worst period.
Separately, the U.S. Labor Department reported that 1.434 million Americans filed for first-time jobless benefits in the week ended July 24, Analysts polled by FactSet had been expecting 1.4 million first-time jobless benefit applications.
Continuing claims game in at 17.018 million, breaking a two-month downtrend.