MNI DATA REACT: Lockdowns Drive Biggest US GDP Drop Since 2008

--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

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