America’s economy contracted at a 5 percent pace in the first quarter of 2020, the sharpest decline since the 2007–2009 Great Recession, the Commerce Department said.
The agency’s Bureau of Economic Analysis said in a release May 28 that the 5 percent drop in U.S. economic output, as measured by gross domestic product (GDP), is a bigger decline than an earlier, preliminary estimate of an annualized 4.8 percent drop.
The bleak number has been blamed, in part, on pandemic-related lockdowns.
“The decline in first-quarter GDP reflected the response to the spread of COVID-19, as governments issued ‘stay-at-home’ orders in March,” the Commerce Department said.
“This 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,” it added.
The agency added that the full economic impact of COVID-19, the disease caused by the Chinese Communist Party (CCP) virus, commonly known as the novel coronavirus, “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.”
The drop in first-quarter GDP was driven largely by a fall in personal consumption expenditures, private inventory investment, nonresidential fixed investment, and exports.
The Commerce Department figures also showed that new orders for key U.S.-made capital goods tumbled in April and shipments declined. This bolsters expectations that the virus crisis will lead to the deepest economic contraction in the second quarter since the Great Depression.
Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 5.8 percent last month, the Commerce Department said.
Last month’s drop in core capital goods orders and shipments suggested business investment decreased further early in the second quarter after four straight quarterly declines. It came on the heels of record drops in retail sales and production at the nation’s industries in April after drastic measures to slow the spread of COVID-19.
Economists are estimating GDP plunged at as much as a 40 percent annualized rate in the second quarter, which would be the largest slump in output since the government started tracking quarterly GDP in 1947.
But the bottom in core capital goods orders is likely near, with regional Federal Reserve factory surveys falling in May, but at less steep rates as the economy reopens.
Also, equity markets, flooded with central bank cash, have rallied over the past two months on expectations of a sharp, vigorous recovery.
President Donald Trump, in remarks at a May 26 event in the Rose Garden, touted the strong stock market numbers and predicted a sharp economic rebound later this year and a near-record 2021.
“We’re making very good progress on the economy. The numbers are better than anybody would have anticipated,” Trump said, adding, “And certainly, I think that’s been reflected in the stock market, which had a very big day.
“But people are seeing what’s happening. They’re seeing there is a pent-up demand, as I was predicting. And you’re going to see it more and more. We call it the ‘transition to greatness,’ and it really is.
“We’re going to have a third quarter that’s going to be good. We’re going to have a fourth quarter that has the potential to be really good. And we’re going to have the best year—one of the best years we’ve ever had—next year. That’s what we see.”
Reuters contributed to this report.