2Q20 GDP: Massive Losses, Mostly Behind Us

July 30, 2020
Bottom Line: GDP in the 2nd Quarter fell nearly 33% annualized from the 1st Quarter. While these numbers are historically unprecedented, the losses were mostly as expected. Consumption led the losses, falling 35% annualized and contributing 25 points of the nearly 33 lost. Nowcasting data suggest the economy bottomed in late April or early May, and thus these data are mostly old news. The economy rebounded from the shutdowns for the novel coronavirus until late June. Since then the recovery has lost momentum. Nonetheless, early estimates for the 3rd Quarter (with only a month and little official data available) suggest the rebound could be 18% annualized, leaving the year-on-year losses closer to 6% after finishing the 2nd Quarter with losses of 9.5%. Finally, benchmark annual revisions were modest with very little change to the recent years' growth tallies. Gross Domestic Product FELL by 32.9% in the 2nd Quarter, slightly better than market expectations for a decrease of 34.5%. Economic activity is now 9.5% BELOW its year-ago level. Inventory Investment FELL by $234.6 billion, subtracting 3.98 percentage points from overall economic activity. Consequently, Real Final Sales FELL by 29.3% and is now 7.8% BELOW its year-ago level. Imports FELL by 53.4% and Exports FELL by 64.1% so Net Exports ROSE by $7.3 billion. This implies that Real Final Domestic Demand FELL by 28.2% and is now 8.1% BELOW its year-ago level. Consumer Spending FELL by 34.6%, contributing 25.05 percentage points to economic growth. Business Investment FELL by 27.0%, subtracting 3.62 percentage points to GDP. Intellectual property products declined by 7.2% while non-residential structures declined by 34.9%. Residential Investment FELL by 38.7%, subtracting 1.76 percentage points to economic growth. Finally, Government Purchases ROSE by 2.7%, adding 0.82 percentage points to GDP. This was its 10th positive contribution in the last 12 quarters. The GDP Price Index FELL by 1.8%, compared with market expectations of 0.1%. This is also 0.6% ABOVE its year-ago level.