The grim figure marks the first negative GDP reading since the 1.1 percent decline in the first quarter of 2014 and the lowest level since the 8.4 percent plunge in the fourth quarter of 2008 during the worst of the financial crisis. Economist surveyed by Dow Jones had expected the first estimate of GDP to show a 3.5 per cent contraction this time round.
The upshot is this was already an economic catastrophe within two weeks of the lockdowns going into effect.
Today’s data shows the biggest hits on the economy came from consumer spending, nonresidential fixed investment, exports and inventories.
Consumer spending, which makes up two thirds of GDP, fell 7.6 percent as all nonessential stores were closed and the cornerstone of the US economy was taken out of commission.
Exports dropped 8.7 percent while imports fell 15.3 percent, including a 30 percent drop in services.
USA GDP has plummeted in the first three months of the year
The data shows the deep impact of coronavirus on the ecomomy with analysts warning second-quarter figures will be the worst since World War 2.
Paul Ashworth, chief US economist at Capital Economics, said: “The upshot is this was already an economic catastrophe within two weeks of the lockdowns going into effect.
“The second quarter will be far worse.”
Most economists see the US in recession even though the technical definition is generally two consecutive quarters of negative growth and the fourth quarter of last year saw a GDP rise of 2.1 percent.
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That view is largely because the first-quarter numbers only include a few weeks of the economic shutdown and even at that probably underestimate the real damage.
The Bureau of Economic Analysis itself pointed out in a technical note that the initial reading was probably inaccurate.
It said: “The coronavirus lockdown led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending.
“The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.”
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Goldman Sachs warned the revided result could show a decline of about 3 to 4 percentage points for a total slide of 8.25 percent.
One issue is that with most businesses closed – Citigroup estimates 95 percent of GDP is under stay-at-home orders – it was difficult to get accurate numbers on the movement of goods and services.
Goldman Sachs economist Spencer Hill said: “We believe economic reality during the quarter was even worse.
“Larger than usual revisions to growth data are common in recessions and other periods of high economic volatility.
“Reflecting the onset of recession in the US and the scope for additional economic measurement challenges unique to the coronavirus, we believe the wedge between growth data and economic reality is large and rising.”