The US economy experienced the largest decline in activity it has ever seen in the second quarter, although it was not as bad as feared.
Gross domestic product from April to June fell 32.9%, according to the Commerce Department’s first reading of data released Thursday. Economists surveyed by Dow Jones had been looking for a 34.7% drop.
Still, it was the worst drop in history, rivaling only in mid-1921.
Sharp contractions in personal consumption, exports, inventories, investment, and spending by state and local governments converged to reduce GDP, which is the combined sum of all goods and services produced during the period.
Spending slipped into health care and goods like clothing and footwear. The falls in inventory investment were led by motor vehicle dealers, while equipment spending and new family homes were affected investment wise.
Domestic purchasing prices, a key indicator of inflation, fell 1.5% during the period, compared to a 1.4% increase in the first quarter, when GDP fell 5%. . Excluding food and energy, “basic” PCE prices fell 1.1%.
However, personal income soared, thanks in large part to government transfer payments associated with the coronavorus pandemic. Personal income in current dollars increased more than six times to $ 1.39 billion, while personal disposable income soared 42.1% to $ 1.53 billion.
Despite the increase, personal outlays fell by $ 1.57 trillion, largely due to a drop in service spending.
Neither the Great Depression, nor the Great Recession, nor any of the more than three dozen economic crises in the past two centuries have caused such sharp drainage in such a short period of time.
In comparison, the worst quarter during the 2008 financial crisis was the 8.4% drop in GDP in the fourth quarter of that year. The previous low-water mark was a 10% drop in the first quarter of 1958, while the worst in recorded history occurred in the second quarter of 1921.
This particular drop in activity is due to a different source than any of its predecessors: a government-induced shutdown aimed at fighting Covid-19.
Workers across the country were told to stay home from any job that wasn’t deemed essential, resulting in a crushing halt that saw the highest unemployment rate at 14.7%, a post-Depression high. The National Bureau of Economic Research said the current recession actually started in February, a month before the pandemic declaration. First quarter GDP fell 5%.
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