First Quarter GDP – It Will Only Get Worse from Here

By Richard Branch, Chief Economist Dodge Data & Analytics

BEDFORD, MA - April 30, 2020 - The much anticipated advance release of first-quarter GDP came in at an annualized -4.8%, the largest quarterly decline since the fourth quarter of 2008. This was a little worse than Dodge’s expectation for a 2.5% decline.

Weakness was widespread. Consumer spending dropped 7.6% on an annualized basis, marking the largest quarterly percentage drop since the second quarter of 1980. Within consumer spending, the only category to post growth in the quarter was nondurable goods (aka groceries and other consumables).

Private investment fell back 5.6% (annualized), but the underlying story was mixed. Stark declines were evident in both nonresidential structures and equipment, the business portions of private investment. Residential investment, by contrast, posted an annualized 21% gain in the first three months of the year. Separately, Dodge reported that first-quarter single family starts were the strongest since 2007. Government spending also increased, but by a tepid 0.7% (annualized) in the first quarter.

Of course, the first quarter ended with March, before the full force of shutdowns, increased unemployment, and physical distancing were fully accounted for in economic data. Second-quarter GDP will likely be even more dour — dropping by 24% on an annualized basis in the Dodge forecast. And this may turn out to be an overly optimistic projection.

As the year transitions into the second half and as the country gradually reopens, the economy will rebound. However, the growth trajectory will depend largely on the track of the virus and how well it can be contained as stay-at-home orders are eased. Tracking, measuring, and very gradual re-opening will be key to a sustained recovery.

 

 

 

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