Gross domestic product (GDP) decreased at an annual rate of 4.8% in the first quarter of 2020 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis on Wednesday. The median forecast among economists was for a decline of 3.9%.
In the fourth quarter of 2019, real GDP increased 2.1%.
In its news release, BEA stated, “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. “
The decrease in real GDP in the first quarter reflected negative contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, and private inventory investment that were partly offset by positive contributions from residential fixed investment, federal government spending, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased. The decrease in PCE reflected decreases in services, led by health care, and goods, led by motor vehicles and parts.
The decrease in nonresidential fixed investment primarily reflected a decrease in equipment, led by transportation equipment. The decrease in exports primarily reflected a decrease in services, led by travel.
Mike Fratantoni, chief economist for the Mortgage Bankers Association, explained, “The advance estimate for first quarter GDP showed a sharp 4.8 percent drop, which is in line with the rapid deterioration in the job market caused by COVID-19. Consumer spending plummeted by 7.6 percent, including a 16.1 percent drop in spending on durable goods. Surprisingly, this estimate includes an increase in residential investment, which does not line up with the strong decline in home sales and construction at the end of the quarter.
He continued, “The decline in GDP in the first quarter really reflects the sudden stop of economic activity in March. We expect an even steeper decline in the second quarter, as the country has been in lockdown in April. However, as indicated in our purchase application data out this morning, we are beginning to see an uptick in the pace of housing demand, which coincides with re-openings in parts of the country.”
