The second-quarter contraction was broad-based, the GDP release showed. Business investment in structures, equipment and intellectual property slumped an annualized 27% pace, the steepest slide since 1952, while residential investment dropped at a 38.7% rate, the most since 1980. More recently, figures have shown a pickup in home sales as Americans take advantage of record-low mortgage rates.
The pandemic’s toll on household spending for services was breath-taking: A 43.5% annualized slide during the quarter, subtracting nearly 23 percentage points from GDP. Meanwhile, outlays for goods took away 2.1 percentage points.
After passage in late March of the Cares Act, the largest U.S. stimulus package in modern history, government spending and investment increased an annualized 2.7% as non-defense outlays surged at a 39.7% pace, the most since the Vietnam War in 1967. However, state and local spending declined at a 5.6% pace, amid plummeting tax revenues.
The report also showed inventories subtracted nearly 4 percentage points from GDP, while trade added 0.7 percentage point.
The quarterly profile of the economy -- as shown by the GDP report -- paints a much different picture than monthly data do. As shutdowns gradually lifted and states began to reopen, economic activity stirred back to life in May and June -- just not to the levels seen before the pandemic.
Millions of people headed back to work, and Americans ventured out of their homes to spend again at newly reopened stores and restaurants. Bolstered by relief payments and unemployment benefits, retail sales rebounded near pre-pandemic levels and consumer spending surged by the most on record in May -- though still came in short of the February level.
Economy’s Outlook
The rebound in activity will largely be captured in the third-quarter figures, which won’t be released until Oct. 29, just days before Election Day. But the surge in virus cases has led the economic recovery to stall for several weeks as consumers hold back on spending and traveling amid continued layoffs, according to the Bloomberg Economics recovery tracker.
Crucial lifelines in the pandemic, like the extra $600 in weekly unemployment benefits, are expiring at a time when the economic recovery is showing signs of teetering. Lawmakers are currently debating another stimulus package to support businesses and the unemployed, but the timing of the bill is unclear. Support from Congress has buoyed the economy in recent months, and further action will be crucial in determining the path of the recovery.
This is the first estimate of three for the second-quarter figures, and the figure will likely be revised over the next two months as the Bureau of Economic Analysis receives further data.
This article was provided by Bloomberg News.