The economy shrank at a historic annual rate of 33% in the second quarter, but that’s not the whole story


TOP LINE

The gross domestic product of the United States – the total value of all goods and services produced by the economy – fell at an annual rate of nearly 33% in the second quarter, the largest annualized decline in history, but this statistic does not tell the whole story. Here’s a better way to think about it.

HIGHLIGHTS

The shocking 33% figure assumes that the rate of economic contraction in the United States will remain unchanged for the rest of the year – it won’t because the country has partially reopened and it is unlikely to repeat the lockdown near national level of the coronavirus. of the second trimester.

The change in GDP from the first quarter to the second quarter was 9.5%, a much more accurate – and still dire – representation of what has changed in the economy in recent months.

The Commerce Department said the drop was fueled by declines in personal consumption, exports, and state and local government spending, among other factors.

An increase in federal government spending, thanks to the bailout provisions of the CARES Act, helped offset some of the damage.

The second quarter also saw a surge in the personal savings rate (the amount saved as a percentage of disposable income) of 25.7% from 9.5% in the first quarter.

Key context

The dismal economic data comes as lawmakers in Washington struggle to reach agreement on what the next round of federal coronavirus aid should look like, as the main benefits provided by the CARES Act, such as a moratorium on evictions for some tenants, and additional federal unemployment benefits, are expiring. An alarming increase in new Covid-19 cases and deaths across the country is also adding to the pressure. Florida and California both set new records in a single day of virus deaths on Wednesday.

Tangent

Minutes after the data was released Thursday morning, President Trump on Twitter suggested that the November election be delayed due to the risk of fraud that he said would accompany postal voting (although he provided no proof of this risk).

Some savvy Trump watchers have suggested the tweet was intended to distract from the disheartening data.

Further reading

Trump suddenly wants side deal ahead of next stimulus bill that would protect tenants from eviction (Forbes)

Stimulus Unemployment Update 2: Over 30% of Americans Couldn’t Go Through a Month Without $ 600 Checks (Forbes)

Second stimulus: Republicans revolt against their own bill: this is what they oppose (Forbes)

There will be no showdown over the next COVID-19 stimulus bill. Pelosi has already won. (Forbes)


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