- The revision went in the right direction but the BEA’s second estimate of second quarter real GDP still showed the biggest decline in the historical record at -31.7% annualized, slightly better than its advance estimate of 32.9%.
- The fall in activity was led by a 34.1% (annualized) decline in real personal consumption expenditures (-34.6% initially). Both goods and services were revised up relative to the advanced estimate, services to -43.1% (from -43.5%) and goods to -10.6% (from -11.3%).
- Other components of GDP were mostly revised in a modestly positive direction but told broadly the same story as the advanced estimate.
- Despite the incredible decline in economic activity, disposable personal income rose 47% annualized (revised up from an initial estimate of 44.9%).
Key Implications
- We’ve had some time to digest the unprecedented decline in economic activity that took place earlier this year. Attention is now on the pace of the comeback. While there are signs of slowing in activity through the summer months as the virus spread, the switching on of the economy in May and June will still show up in double-digit annualized growth (likely in the neighborhood of 25% to 30% annualized) in the third quarter.
- This will not be enough to make the economy whole and it will likely be well into 2021 and quite possibly later before the level of economic activity recaptures its pre-crisis level. Much will depend on the speed and effectiveness of a vaccine as well as the continuation of fiscal supports to bridge incomes until activity can return to normal.
- The awesome growth in disposable personal income reflects the swift delivery of those fiscal supports. While this gives households some buffer (reflected in a 26% personal saving rate), the reality is that unless unemployment benefits are topped up, consumption growth is likely to slow, delaying the return to economic normalcy.
