—Second Quarter PCE Plunged by 34.6% After 6.9% Drop in First Quarter–First Quarter GDP Unrevised at 5.0% Decline, Fourth Quarter GDP Revised Up To 2.4% Gain
–Initial Jobless Claims Rise By 12,000 to 1.434 Mln, 4-Week Average Up For First Time Since April
By Kevin Kastner
WASHINGTON (MaceNews) – As expected, the U.S. economy contracted sharply in the second quarter due to a significant and widespread shutdown in April. Some reopening in May and June provided some offset and momentum going forward going into the third quarter assuming that the recent resurgence of COVID cases can be contained.
Second quarter GDP fell by a record 32.9%, compared with a 35.0% decline expected, with consumption and business spending both significantly negative key factors.
First quarter GDP was unrevised from the previously reported 5.0% decline, while fourth quarter 2019 GDP was revised up to a 2.4% increase and third quarter 2019 GDP was revised up to a 2.6% increase.
Annual revisions are included with the advance estimate for the second quarter each year. This year’s revisions, as usual, made offsetting alterations on a quarterly basis, but left annual growth rates virtually unchanged.
In the second quarter, personal consumption expenditures fell by 34.6%, a larger drop than the 33.0% decrease expected, following a 6.9% decline in the previous quarter.
Goods consumption fell by 11.3% while services spending plunged by 43.5% on declines in health care, recreation, and food services and accommodations. Monthly retail sales partially recovered in May and June, but not enough to offset the sharp declines that started in March and extended into April.
Nonresidential fixed investment fell by 27.0% in the second quarter after a 6.7% drop in the previous quarter, reflecting a 34.9% decline in structures and a 37.7% drop in equipment spending as firms experienced supply shortages and lack of demand. The manufacturing data moved higher in June and in most areas in July, a solid start for a rebound in the third quarter.
Inventories fell by $315.5 billion in the second quarter following an $80.9 billion decrease in the previous quarter, as production cuts caused severe shortages for some goods. The advance trade data released Wednesday showed inventories fell modestly in June after declines in April and May, so the quarterly drop is not a surprise. Increased production going forward should fuel a third quarter rebound.
Residential fixed investment fell by 38.7% after a 19.0% increase in the previous quarter. The home building data recovered in June after shutdowns earlier in the quarter. Interest rates have been near record lows in the recent months, while home sales rose solidly in June, both positive indicators for residential investment going forward.
The net export gap narrowed modestly to $780.7 billion from $788.0 billion in the previous quarter, reflecting an 64.1% drop in exports and a 53.4% decline in imports as global demand plummeted.
Advance trade data for June released Wednesday showed that exports and imports both rose at the end of the quarter.
Government spending rose by 2.7% in the second quarter, reflecting a 17.4% increase in Federal Government spending offset by a 5.6% decline in state and local government spending.
While Federal spending will remain brisk due to stimulus measures, the severe reduction in income and sales tax revenues due to the shutdowns will have an impact of state and local government budgets for some time.
The price measures for the second quarter dipped sharply, while the year/year increases slowed compared with previous quarter.
The overall GDP price index fell by 1.8% after a 1.4% increase in the previous quarter. The PCE price index fell by 1.9% after 1.3% increase, while the closely watched core PCE price index fell by 1.1% after a 1.6% increase in the first quarter, pulling the year/year rate down to 0.9%.
In other data released on Thursday, initial jobless claims rose by 12,000 to 1.434 million in the July 25 week, above the 1.388 million level expected and following an increase to a 1.422 million level in the previous week.
The four-week moving average rose by 6,500 to 1.369 million in current week, the first increase in the average since early-April.
Barring an agreement between the two political parties, the enhanced claims benefit of $600 per week is due to expire tomorrow and will be replaced by, alternatively, the same amount, a smaller amount, or for many people, no extra amount at all.
Unadjusted initial claims fell by 171,054 in the current week, compared with seasonal adjustment expectations for slightly larger decline. The state data suggested showed declines in most states, notably the recent COVID hotspots of California, Texas, Florida, and Georgia.
Continuing claims surged by 867,000 to 17.018 million in the July 18 employment survey week but was still down from 19.231 million in the June 13 employment survey week.
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Contact this reporter: kevin@macenews.com.
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