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--US GDP -4.8% in Q1, Worse Expected to Come
By Ryan Hauser
     WASHINGTON (MNI) - US GDP sank by -4.8% in the first quarter, worse than
the -4.0% median market expectation, as lockdowns designed to slow the
coronavirus pandemic put a halt to economic activity in the final weeks of
March.
     The Commerce Department data released Wednesday show the largest quarterly
contraction since the fourth quarter of 2008, when GDP fell by -8.8% at the
bottom of the global financial crisis. It also marks the first post-crisis GDP
drop. 
     The data indicate a recession is well underway in the world's largest
economy, with second quarter readings expected to be much steeper. The
Congressional Budget Office said last week that it expects close to a -40% drop
in GDP in the second quarter, when the effects of the pandemic will be more
widely felt and accurately measured.
     --CONSUMER SPENDING PLUMMETS
     Personal consumption expenditures fell by -7.6% as services consumption
plummeted by an all-time record -10.2%. Health care spending led the decline,
contributing -2.25 pp to the overall GDP loss as non-emergency health visits
were postponed amid the pandemic. Spending on durable goods also fell -16.1%,
driven by a drop-off in new vehicle sales. 
     Nonresidential fixed investment dropped -8.6% as equipment investment fell
-15.2%, led by information processing equipment. Construction spending also
fell, reflected in a a -9.7% drop in structures investment. 
     Exports contracted by -8.7%, driven by capital and consumer goods and the
lack of international tourism. Imports fell by an even greater -15.3%, with
travel services a large contributor. 
     Federal spending grew 1.7% and state and local government spending added
0.1%.
     The GDP price index jumped 1.6%, outpacing the expected 1.0% increase. The
PCE price index increased 1.3%, slowing from 1.4% in the fourth quarter.
Excluding food and energy, the PCE price index rose 1.8% compared to 1.3% in the
previous quarter, boosted by clothing and footwear prices and higher financial
services prices. 
     --COVID-19 EFFECTS
     The BEA said the drop in first quarter GDP was partly "due to the response
to the spread of COVID-19, as governments issued 'stay-at-home' orders in March"
which "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."
     However, it said it could not quantify the specific impact of the virus
because "the impacts are generally embedded in source data and cannot be
separately identified."
--MNI Washington Bureau; +1 202 371 2121; email: ryan.hauser@marketnews.com
[TOPICS: MAUDS$,M$U$$$]