US GDP Plunges 32.9% In Historic Q2 Contraction Fueled By Coronavirus Pandemic

U.S. gross domestic product from April to June plunged 32.9%, the Commerce Department said Thursday. 

While the figure is better than the 34% drop economists expected, it's the worst economic contraction on record in the U.S. 

What The GDP Drop Means: The GDP is a calculation of all goods and services produced by a country in a given time frame. Much of the economy's GDP is driven by consumer spending.

The 32.9% annualized decline in GDP in the second quarter is more than three times larger than the previous record quarterly contraction, and this underscores the unprecedented hit to the economy from the pandemic, Andrew Hunt, U.S. economist from Capital Economics, says in an emailed note.

It will take years for the damage to be fully reversed, the economist says.

The economic downturn and the fall in GDP was driven mainly by a 34.6% plunge in consumption, as the lockdowns in late March and April forced many consumers to stay at home. Services consumption was down by a massive 43.5%.

“Investment was a bit weaker than we had anticipated, with business investment falling by 27% and residential investment down by nearly 40%, although the latter is clearly now rebounding rapidly,” says Hunt.

Exports plunged by 64% on an annualized basis, with imports down by 53%, but this meant net trade made a positive contribution to GDP growth, according to Capital Economics. But it was more than offset by a huge 4% drag from inventories.

“The fiscal stimulus contributed to a 2.7% rise in government spending, although that would have been bigger in the absence of a 5.6% drop back in state and local spending, which is likely to be an ongoing drag as revenue shortfalls force authorities to slash budgets,” Hunt says. 

Activity Rebounding In Q3: Activity has rebounded strongly in May and June, setting the stage for a strong rise in GDP in the third quarter, the economist says. 

“We’ll get a better idea when the monthly consumption data for June are released tomorrow, but we currently expect it to be more than 20% annualised."

With the resurgence in coronavirus cases that's underway, a V-shaped recovery is unlikely, according to Capital Economics. 

Related Link:

Buckle Up For Thursday's GDP Forecast: What To Expect

Posted In: Capital EconomicsCoronavirusCovid-19GDPAnalyst ColorNewsEcon #sEconomicsAnalyst Ratings

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.