Economy Plunges In First Quarter, With Biggest Drop In GDP Since 2008

(PresidentialWire.Com)- For the first time in almost six years, the United States economy contracted.
In the first quarter of 2020 (from January through March), America’s GDP fell at an annualized rate of 4.8%, according to the U.S. Bureau of Economic Analysis. The last time the country’s economy contracted was the first quarter of 2014. This drop also marked the biggest one since the fourth quarter of 2008, when the GDP dropped 8.4%.
The Commerce Department attributed the large drop in GDP to an obvious culprit:
“[It was] in part, due to the response to the spread of COVID-19, as governments issued ‘stay-at-home’ orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted or re-directed their spending.”
Since the coronavirus pandemic hit hard in the middle of March, more than 26 million Americans filed for unemployment benefits. Without their normal income — or with at least the threat of reduced income — consumer spending dropped 7.6% in the first quarter, the most it had since 1980. And this is important, as consumer spending accounts for roughly 70% of GDP.
Optimists will look at the fact that the economy was doing quite well for the first 2.5 months of the first quarter, before the bottom dropped out all at once in mid-March. They’ll point to the fact that as states start to re-open and people get back to work, it’s likely the economy could have a relatively quick turnaround in a positive way.
The chief U.S. economist for Oxford Economics, Gregory Daco, shed light on some of this, saying:
“Prior to the coronavirus shock, the economy was doing relatively well. The shock that we experienced in the second half of March actually has led to a sudden stop in spending on a lot of services and even spending on some goods.”
Even though the change in the economy was so abrupt in mid-March, most economists predict the biggest impact will actually be felt in second-quarter performance. Daco said he estimates the economy will end up being 12% smaller at the end of June than it was at the start of 2020. He said:
“To put that into perspective, that [drop] would be three times as large as what we experienced in the global financial crisis.”
In fact, it would be much more akin to what happened at the end of World War II. Factories that were building warplanes and tanks suddenly stopped doing so, and they didn’t make the quick transition back to consumer goods.
Once we pass the first half of the year, though, there are plenty of economists who believe the country is primed for a nice rebound. One of those people is IHS Markit economist Ben Herzon, who said:
“Whenever you have the entire country changing behavior at one time in a way that reduces spending it’s certainly enough to wipe out any of the gains that we saw earlier in the year. For now, we’re expecting the economy to more or less stabilize in the third quarter and then begin to recover in the fourth quarter.”