- Q1 GDP declined 4.8% from Q4 (annualized rate)
- Consumer spending posted largest decline since the 1980s recession
- Q2 data will be much worse
Social/physical distancing measures already pushed US GDP sharply lower in Q1 – despite those disruptions only really ramping up in the last couple of weeks of the quarter. But the magnitude of that late-quarter pullback was unprecedented given the 10 million jobless claims filed over the last two weeks of March. Consumer spending plunged 7.6% – larger than any decline in the 2008/09 recession (and the biggest on record since the early 1980s). Business investment spending also fell sharply already. Residential investment still managed to post an outsized increase, but that won’t last given the pullback in new housing starts already reported in March. And net trade contributed positively to top-line GDP growth in Q1, but only because imports plunged more than exports.
And the pullback in Q1 activity is still just a precursor to what will almost certainly be a record-setting Q2 drop. Jobless claims continued to mount in April after the late-March surge, with the number of initial jobless claim applications hitting 26.5 million over the last 5 weeks. Some states have already begun to loosen physical distancing measures, and unprecedented government and monetary policy stimulus will help keep more households and businesses afloat until the initial disruptions have passed. But it is highly unlikely that there will be a return to “pre-COVID” normal any time soon absent the tail-risk that a much more effective near-term treatment is found. We look for a pullback in Q2 GDP of 35% and a partial bounce-back over the second half of the year that will leave economic activity still well-below year-ago levels in Q4.
