The Bureau of Economic Analysis (BEA) released the first quarter Gross Domestic Product (GDP) advanced estimate and the result is a 4.8% decline in economic activity. [BEA Here]
The revised fourth quarter GDP shows the economy was growing at 2.1 percent prior to the COVID-19 shutdown. The severity of the change in GDP reflects a severe drop in consumer spending, essentially bringing the economy to a halt in March as the entire nation went into lock-down. As the BEA explains:
The decline in first quarter GDP was, in part, due to the response to the spread of COVID-19, as governments issued “stay-at-home” orders in March. 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.
The full economic effects of the COVID-19 pandemic 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. (more)
Digging down into the details the data shows what we all have seen. There is some specific data that is noteworthy in the tables.
Consumer spending on food purchased for consumption at home jumped a remarkable 57.4 percent over the prior quarter [Table 3, line 10]. That stunning increase shows how much people started shopping at supermarkets; and keep in mind the increase only really started in the last month of the quarter (March).
Second quarter spending on durable goods dropped 77.3 percent compared to durable good purchases in the fourth quarter of 2019 [Table 3, line 4], and purchases of motor vehicles dropped 53.3 percent.
Despite the overall bad news, there is some more optimistic data. While the export of goods dropped 1.2 percent, the import of goods dropped 11.4 percent [Table 1, line 20]. The net impact was positive for our GDP growth at +1.30 percent [Table 2, line 43].
The Import/Export dynamic is following a slightly longer term trend and indicates overall GDP is benefiting from expanded production in the U.S. and decreased purchasing of goods from overseas. The primary contributors to this domestic economic gain appear to be coming from increased energy exports; a return of durable good manufacturing; and specifically increased investment in North American auto manufacturing.
Further, when we consider that: (1) Boeing was essentially shut-down in Q4 2019 and Q1 2020; and (2) China was not purchasing agriculture products; the net GDP growth in the import/export equation is strong and will likely only get stronger once we restart the economy. Bottom line: as a nation we appear to be on a track to much less dependence on foreign products.
It does not seem coincidental this part of the economic shift is happening as the USMCA was ratified and corporations are re-evaluating the best location for future investment. The U.S. stock market appears to be taking note of this investment trend-line.
Current‑dollar GDP decreased 3.5 percent, or $191.2 billion, in the first quarter to a level of $21.54 trillion. In the fourth quarter, GDP increased 3.5 percent, or $186.6 billion (tables 1 and 3). (link)
The data is troubling… behind the data are real people, real lives, real workers, real families; and it is challenging to remain optimistic amid all of the economic turmoil created by the COVID-19 pandemic and economic shut-down. However, there is hope in the underlying data… once we get beyond this challenge.
Keep strong. Keep faithful. Keep optimistic. Remain kind.
Take care of yourself and your family.
Live your best life.
You’re worth it.
