Historic second-quarter GDP report will show how hard the economy crashed in virus shutdowns

  • Economists expect a 34.7% decline in second-quarter gross domestic product,  an unprecedented and rapid drop.
  • The economy suffered a huge hit across the board, but economists say it was the abrupt slowdown in consumption that led the decline.
  • The third quarter is expected to show improvement from the second quarterly contraction, which is unlike any in government data.

When the government releases gross domestic product data on Thursday, it is expected to show an unprecedented contraction of nearly 35% in the second quarter when America shut down to stop the spread of the coronavirus.

Economists forecast a 34.7% decline in gross domestic product during the second quarter, following a 5% decline in the first quarter, according to Dow Jones consensus forecast. The report is expected at 8:30 a.m. ET.

The decline was led by a sharp drop in consumption as consumers stayed home, businesses closed and schools taught children remotely.

"This is the largest decline in 70 years of quarterly data," said Diane Swonk, chief economist at Grant Thornton. Aside from the Great Depression, when there was no quarterly data, other sharp quarterly drops were 10% in 1958; 8% in 1980's first quarter, and the 8.4% drop in the financial crisis in the fourth quarter of 2008.

"It should be a pretty awful number, mainly because of the collapse in personal spending early in the quarter," said Michael Gapen, chief U.S. economist at Barclays. "None of that is new news and markets have been expecting a catastrophic dive in Q2 GDP. Really it just tells you how deep the hole was so you know how far you have to go to climb out of it. …70% of the economy is consumption."

After the shutdowns in April and May, consumers increased their spending on goods again in May and by June, and government retail sales data showed spending near pre-pandemic levels. 

Swonk expects consumption to be down more than 36%, and she is watching the report to see how much services spending slid. "We fell 5 percentage points in the first quarter and consumption was down 6.8%," she said. "The problem is services is such a large share of consumption, and we lost a lot of services."

Chris Rupkey, chief financial economist at MUFG Union Bank, said he is watching the report for any clues on the third quarter, which could show up in consumption.

"The GDP is too backward looking here, especially after the briefing with [Fed] Chairman [Jerome] Powell. He was explicit that the recurrence of the virus starting in mid-June led to a reduction in spending," he said.

Economists expect a rebound in the third quarter, but there are a range of views on how strong the comeback will be. In the CNBC/Moody's Analytics survey of economists, the average forecast is for an increase of 16.4%  in third quarter GDP.

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