U.S. GDP Falls 4.8% in Q1 2020, Why Recession Will Last Long?

UTC by Teuta Franjkovic · 4 min read
U.S. GDP Falls 4.8% in Q1 2020, Why Recession Will Last Long?
Photo: Depositphotos

U.S. gross domestic product turned negative for the first time since 2014 in the first three months of the year as the coronavirus pandemic broadened out across the globe and country in March.

The United States economy crash, mostly caused by the COVID-19 outbreak generated the largest fall in the GDP in the first quarter since the 2008 crisis. However, it doesn’t seem it may be over soon as the recession is here to stay. During this spring, it could fall even more.

For what we know now, GDP, the official scorecard for economic growth, dwindled at a 4.8% annualized pace from the beginning of January to the end of March, which is one of teh signs of the recession. This is much more than analysts polled by MarketWatch had forecast – a 3.9% fall.

Coronavirus spread all over the globe and no country was left behind. However, only in March, its effect could be seen in the U.S. economy sending it into the biggest crisis since the Great Depression approximately 90 years ago. We can presume furthermore, that the U.S. economy will continue to shrink by a minimum of 25% in the second quarter. Some analysts even estimate 40% of contraction. Just for comparison, before this all happened, U.S. economy was rising by a steady 2% pace during 11 years constantly.

Recession: GDP Is Down, All Spending Is Diminished

So, let us go through all that happened. Consumer spending decreased by 7.6% per year which represents the biggest retreat since 1980. All spending was diminished. Cars, clothing, travel, restaurants, people weren’t buying. That brought to another externally – people losing their jobs, businesses being shut, personal debts rising. Also, health-care spending fell by 2.3% event hough the pandemic was raging. People even didn’t want to go to the hospital to doctor anymore because of fear of possible contracting coronavirus. In the cities where there were no big infection numbers, that brought to the closure of hospitals and lay-off of doctors and medical workers.

Spending on construction dipped almost 10% and investment in equipment sunk 15%. The value of unsold goods fell by a $29.4 billion annual rate.

However, the housing sector came out somewhat better. Investment rose by 21% as low mortgage rates cheered construction companies to build even more houses in order to meet increasing demand. Still, this rise will probably not sustain during the second quarter.

U.S. Companies Unable to Sell Their Goods Overseas

Be it as it may, with the entire world economy under restrictions, trade has deteriorated everywhere. U.S. exports fell by 8.7% and imports went down even more – 15.3%. A smaller trade deficit maybe could add a little to GDP. However, this is no comfort when we know that American companies can’t sell their goods overseas and its citizens can’t afford to buy imported goods.

During the first quarter, government spending rose a bit. The majority of the nearly $3 trillion in federal aid to unemployed workers and closed businesses didn’t start flowing until April. However, only direct government spending is included in GDP. financial aid and transfers such as social security are not included.

The inflation rate stood still at 1.3% and it is expected that the inflation stays low.

Economy in Recession for a Longer Time

It is expected that the economy stays in recession for quite some time now. Again, this will all depend on the pace on which the U.S. states manage to limit the coronavirus spread. However, even after it is restrained, probably most people will still be in fear and practice social distancing. That will keep on negatively impacting industries such is traveling or food industries as well.

“The upshot is this was already an economic catastrophe within two weeks of the lockdowns going into effect. The second quarter will be far worse,” said U.S. economist Paul Ashworth of Capital Economics.

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