Record GDP Shrinkage, the State of the U.S. Economy, and Signs of Recovery

The U.S. economy has suffered greatly due to the pandemic and associated shutdowns. The second quarter of 2020 broke records as the U.S. GDP shrunk by 32.9%, which is the seasonally adjusted annual rate from the Bureau of Economic Analysis. Compared with the record of 10% annualized GDP shrinkage in 1958, this latest report is staggering. According to NPR, it’s also almost four times that of the worst quarter of the Great Recession. Furthermore, compared to the same period last year, the overall economy has shrunk by 9.5%.

What prompted the U.S. GDP to shrink? You might be wondering which industries have been most affected, which are rebounding, and what the outlook might be for recovery. Let’s delve right in and answer these questions.

Spending Reductions at Home and in Business

MarketWatch cited a 34.6% annualized spending reduction rate during spring and, more specifically, a 43.5% annualized reduction in services spending. On the trade front, exports decreased by 64% in the second quarter, while imports fell by 53%. Unfortunately, economists anticipate months or even years to recover from these trends, which have contributed significantly to the economic fallout of COVID-19. Economists are calling this the greatest recession since World War II.

How about business spending? Well, breaking yet two more records, equipment spending decreased by 37.7%, while infrastructure spending, including oil rig outlays, shrank 35%, according to MarketWatch. As companies decreased or froze their spending, investments were down, too.

Housing Crisis and Recovery

Housing inventory levels decreased by a $234.6 billion USD annual rate in the second quarter, which is $154.6 billion USD greater than the first-quarter drop-off. Additionally, although new housing investments decreased by 38.7%, they are quickly rebounding, thanks partly to record low mortgage rates. By quarter’s end, builders were increasing construction, and new home sales were going up.

Unemployment Rates and Job Gains

With so many businesses scaling back services due to the pandemic and thousands of businesses shuttered permanently, millions of people are out of work in the U.S. In April, the unemployment rate reached nearly 15%, falling to 11.1% in June and 10.2% in July, according to the U.S. Bureau of Labor Statistics. Some of the strongest, most recently reported job gains have been in government, retail trade, professional and business services, leisure and hospitality, and healthcare. In fact, as cited by NPR, busy dental offices alone added over 250,000 jobs in May and another 190,000 in June.

More Good News for U.S. Businesses

Notably, the Bureau of Economic Analysis measures annualized GDP shrinkage per quarter, as if the current quarter’s trends were to continue for a full year. Truthfully though, during such uncertain times, who can say? As coronavirus hotspots erupt and die away, the situation can rapidly change, and we hope that change will be a continued overall improvement.

Interestingly, according to NPR, the construction industry has shown signs of recovery, and production in factories has also increased. Plus, the inflation rate fell 1.9% during the second quarter, after rising earlier this year, according to MarketWatch. Furthermore, it’s interesting to note that although overall purchasing decreased during the second quarter, certain purchases, such as cars and household staples, actually increased.

Readers Weigh In

How about you? How is your industry faring? We always like to discover how our diverse clients and readers are positioning themselves in this new era, so feel free to comment to tell us what you think.