The extent of the economic decline caused by the Covid-19 pandemic became clear this morning when the Commerce Department’s U.S. Bureau of Economic Analysis released its report on the nation’s gross domestic product (GDP) for the second quarter of 2020. The GDP is the total value of goods and services produced in the U.S.
During the second quarter, the GDP lost 32.9%, a dramatic 658% change from the 5% decrease in the first quarter of the year. When adjusted for the current value of the U.S. dollar, it works out to a decrease of $2.15 trillion in economic activity for the second quarter of the year, compared with a $186.3 billion decrease for the first quarter.
MarketWatch characterized it as the biggest economic decline since the government began keeping track after World War II.
There were decreases in personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending.
Decreased spending for health care, clothing and footwear led the drop in PCE. Decreased spending for residential fixed investment was led by a decrease in activity involving new single-family houses. A drop in activity by automobile dealers led the decline in private inventory investment.
What normally would be a welcome factor, increased personal savings, sent a different signal. The personal savings rate hit 35.7% during the second quarter, up from 9.5% during the first quarter. Americans sat on $4.69 trillion during the second quarter, likely because there were fewer places to spend coupled with increased nervousness about the economic future.
An analysis by TD Economics characterized international trade as falling “off a cliff” with exports down 64.1% and imports down 53.4%. It referred to the GDP report as “a report unlike any other and hopefully singular in its entry in the history books.”
If there was a positive note in the GDP report it was that the second quarter decline was below what had been predicted by the Atlanta Federal Reserve. That branch of the Fed had projected a 52.8% GDP drop. The New York Fed was closer to the actual figure with its projection of a 35.5% drop in GDP for the quarter.
The Bureau of Economic Analysis report followed by four days a commentary released in London by economic analyst Fitch Ratings that forecast GDP levels in the world’s most advanced economies to remain 3% to 4% below where they were before Covid-19 hit until the middle of the decade, which would be the year 2050. “Huge uncertainties surround the economic outlook in the aftermath of the massive shock,” Fitch Ratings stated.
At the same time, the U.S. Department of Labor this morning released its report on new unemployment insurance claims for the week ending July 25. Those claims increased slightly from the previous week, with seasonally adjusted initial claims hitting 1,434,000. That brings the number of claims filed in the 19 weeks since the pandemic took hold in the U.S. to more than 54 million.
The Labor Department reported the unemployment rate for the week ending July 18 at 11.6%, an increase of 0.5% from the previous week.
Initial claims for unemployment insurance benefits filed by former federal civilian employees totaled 1,393 in the week ending July 18, a decrease of 339 from the prior week. There were 1,130 initial claims filed by newly discharged veterans, a decrease of 115 from the preceding week.
The highest insured unemployment rates in the week ending July 11 were in: Puerto Rico 24.6%; Nevada, 22.%; Hawaii, 21%; Louisiana, 16.6%; New York, 16.3%; Georgia, 16%; California, 15.5%; Connecticut, 15.1%; Massachusetts, 14.5%; and the Virgin Islands, 14.5%.
The largest increases in initial claims for the week ending July 18 were in: Louisiana, up 5,728; Virginia, up 5,654; California, up 4,680; Tennessee, up 3,713; and Alabama, up 3,113.
The largest decreases were in: Florida, down 23,855; Texas, down 17,608; Georgia, down 16,139; New Jersey, down 12,893; and Washington, down 12,261.
In New York there were 85,000 new claims for unemployment insurance benefits during the week ending July 25, down 3,176 from the previous week’s 88,176 claims.
Connecticut had 11,310 new claims for the week ending July 25, down by 357 from the 11,667 in the previous week.
