That hissing sound is the U.S. economy deflating at an unprecedented pace, thanks to the coronavirus pandemic and consumers not only retrenching on spending, but keeping a tight grip on their wallets.
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.
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.
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.
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