GDP for Q2 fell by 10%
That's bad. Really bad. As in the worst decline in quarterly GDP in recorded U.S. history.
That's bad. Really bad. As in the worst decline in quarterly GDP in recorded U.S. history.
Many headlines will say GDP fell 32.9%.
What they mean is that it fell at an annualized rate of -32.9% which is the result of a thought experiment asking how much lower would GDP be if the recent rate of decline persisted for a year.
But no-one thinks that'll happen. Ignore it
What they mean is that it fell at an annualized rate of -32.9% which is the result of a thought experiment asking how much lower would GDP be if the recent rate of decline persisted for a year.
But no-one thinks that'll happen. Ignore it
As horrific as the GDP number is, it's basically reporting something that we all already knew -- that economic activity came to a screeching halt as the virus altered the contours of our lives. Millions lost their jobs, and the real issue is how our economy recovers.
The *quarterly* drop in GDP is likely larger than experienced at any point in the Great Depression. But that's not because the Great Suppression is deeper (yet). Rather, the Great Suppression played out more quickly than the Great Depression so the bad news was more concentrated.
What's more worrying is that months after the virus arrived, we still have more people losing their jobs each week than at any point during the Great Recession.
The short-term virus-related economic suppression is turning into a more enduring recession.
The short-term virus-related economic suppression is turning into a more enduring recession.
The nominal decline in GDP was actually larger than the real decline because average prices across the economy are falling. (Though covid makes interpreting these prices changes more fraught than usual).
The Fed's target (PCE deflator) declined at an annualized rate of -1.9%.
The Fed's target (PCE deflator) declined at an annualized rate of -1.9%.
Some context: Personal income actually rose a staggering 7.3% in Q2, even as GDP fell -10%.
The difference? An extraordinary level of government support through economic impact payments, unemployment assistance, and PPP for businesses.
(Source: bea.gov/system/files/2…)
The difference? An extraordinary level of government support through economic impact payments, unemployment assistance, and PPP for businesses.
(Source: bea.gov/system/files/2…)
The implication of rising personal incomes in Q2 coupled with declining personal outlays is that the personal saving rate rose massively to an unheard-of 25.7%!
(More generally, beware of simple stories about what's been happening to a pandemic economy.)
(More generally, beware of simple stories about what's been happening to a pandemic economy.)
A rough accounting...
Roughly one third of this latest decline in GDP is due to reduced spending on health care. (Ironic, right?)
Another third is due to reduced spending on recreation, food and accommodation.
The other third is the rest of the economy (mainly investment).
Roughly one third of this latest decline in GDP is due to reduced spending on health care. (Ironic, right?)
Another third is due to reduced spending on recreation, food and accommodation.
The other third is the rest of the economy (mainly investment).
Some good news. The BEA just published revised estimates of GDP over the past five years.
The good news is that they were unusually boring with almost no important changes. The pre-covid economy was largely as we had thought it was.
(okay, that's not really good news.)
The good news is that they were unusually boring with almost no important changes. The pre-covid economy was largely as we had thought it was.
(okay, that's not really good news.)
Here's the most unnecessary part of the decline in GDP: State and local government spending is tanking, and it's going to continue to fall unless Congress provides some help.
If they don't, this will create a recessionary impulse that'll outlast Covid.
If they don't, this will create a recessionary impulse that'll outlast Covid.
Here's my best attempt at an optimistic take...
GDP fell by 10% last quarter, which means that we still produced 90% as much as we were previously.
When I look at the world around me—which is unrecognizable—it's genuinely staggering that we still produced 90% as much stuff.
GDP fell by 10% last quarter, which means that we still produced 90% as much as we were previously.
When I look at the world around me—which is unrecognizable—it's genuinely staggering that we still produced 90% as much stuff.
