United States Gross Domestic Product Falls 4.8% in Q1

Ever since mandated lockdowns and shelter-in-place orders related to the COVID-19 pandemic began, it was clear that the virus would take a toll on the United States economy. Sure enough, the past few weeks have brought multiple rounds of record-breaking jobless claims that now total more than 26 million in five weeks. Now the U.S. Bureau of Economic Analysis has released its first-quarter gross domestic product (GDP) report further demonstrating the economic damage afoot.

According to the report, GDP contracted 4.8% in Q1 2020, marking the first quarterly drop since 2014 and the largest decline since 2008. That’s worse than the -4% that economists had anticipated. The reversal also erases growth from the past two quarters (and then some) as Q3 and Q4 2019 both saw expansions of 2.1%. What’s more, this report only looks at January through March. With the COVID-19 situation only really escalating in mid-March, it is expected that the second-quarter GDP report will be far worse and that a deep recession is very likely. Even before then, economists warn that this current report could be revised downward as more data comes in.

Interestingly, as CNN Business notes, a big factor in the decline was a drop in health care spending. While that might seem counterintuitive given the on-going pandemic, the outbreak has led patients to put off elective or non-emergency procedures. Zooming out, Axios reports that overall consumer spending was down 76% — the biggest drop since 1980.

As for where things go from here, analysts are still attempting to assess the potential damage. Nevertheless, speaking to CNN, Aviva Investors chief economist Michael Grady suggested, “The way we’ve been thinking about this based on evidence from around the world is that each week of lockdown probably knocked off between 0.5 and 1 percentage points off annual growth.” Meanwhile, although some had hope that the economy would rebound to where it was or even continue its growth soon after lockdowns subsided,  ING chief international economist James Knightley shed some doubt on that theory, saying, “Unfortunately, we doubt that the US will experience a V-shaped recovery.” Instead, Knightley expects recovery won’t occur until late 2022.

Despite the GDP report and gloomy news all around, it’s worth noting that the stock markets have continued to rally. At the time of this writing, the Dow Jones Industrial Average is up more than 2.5% from opening. However that run can partially be attributed to news from Gilead that their trials of remdesivir in treating COVID-19 patients had shown encouraging results.

With some states and cities currently outlining plans for phased re-openings, we’ll soon have a better idea of how attainable economic recovery will be. Of course the most pressing fear is that reopening too quickly will lead to more infections and sustained economic hardship. Ultimately, despite the most educated of guesses, it’s fair to say that no one quite knows what’s ahead — so we’re all just going to have to find out together.


Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

Other Articles by Jonathan Dyer

Marqeta Expands Credit Program with New APIs and More

A FinTech that specializes in creating credit card experiences is rolling out some new features. This week, Marqeta announced what it calls a "significant expansion" of its credit platform. This includes more than 40 new credit APIs that will further help clients craft and launch their own credit card products. Additionally, the company notes an updated intuitive dashboard. Using this platform, businesses can create unique card options that can not...

PayPal Launches Small Business Credit Card with Flat 2% Cashback

The popular platform PayPal is rolling out a new product built specifically for small businesses. Today, the FinTech announced the launch of The PayPal Business Cashback Mastercard. The new card will be issued by WebBank and marks the first time PayPal has offered a business credit card. With the PayPal Business Cashback card, business owners will be able to earn 2% cashback on all purchases. This earning rate is not...

Wells Fargo Unveils New Autograph Rewards Visa Card

A new rewards credit card is on the way from Wells Fargo. Today, the bank introduced its Autograph card, which expands the company's refreshed card portfolio. In terms of rewards, the Wells Fargo Autograph Card will earn 3 points per dollar spent in a number of categories. These include restaurants, travel and transit, gas stations, select streaming services, and phone plans. All other purchases will earn 1x points. Beyond the...