A bad record, that is. The economy contracted at a 32.9% annualized rate in the second quarter, according to the Bureau of Economic Analysis reading released on Thursday. This was the largest quarterly decline on record, though not as bad as some economists had feared. A Dow Jones poll, for example, anticipated a 35% tumble, and some estimates anticipated 40% contractions.
Let’s review the categories. Personal consumption expenditures, exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending all shrank, according to the Bureau of Economic Analysis. Of those categories, personal consumption took about 25% out of headline GDP. Within that category, services accounted for nearly all of that fall.
The only meaningful improvement was in personal income, thanks to government payments of $1200 in April, and weekly $600 supplements to unemployment benefits. The BEA reports that personal savings rose from $1.59 trillion in the first quarter to $4.69 trillion in the second. Disposable personal income gained 42.1%, growing to $1.53 trillion. The personal savings rate shot up to 25.7%, from 9.5% in the first quarter.
The Great Recession now feels more like a blip on the radar. At its worst, GDP declined by 8.4%, during the fourth quarter of 2008. No fun at the time (I remember, that was the year I graduated), but what we saw last quarter was nearly four times larger. Prior to 2008, the biggest fall was in the first quarter of 1958, when GDP shrank by 10%. And before that was the Great Depression. GDP wasn’t recorded then the way it is now, but estimates put declines around 25%. Which makes it the second largest drop on record now.
This is something of a ‘man made’ recession, of course. As coronavirus cases surged in the United States, lockdowns began at the end of March, and hit full swing in April, the first month of the second quarter. GDP shrank by 5.0% in the period from January to March, then unemployment hit 14.7% in April, and pretty much every economic indicator looked pretty bad. A slow recovery seems to be in the making, but with coronavirus cases turning back up, there’s no telling whether it can be sustained.