U.S. Economy Shrank At 4.8% Pace In First Quarter – Stock Market Today


The decline in seasonally and inflation-adjusted gross domestic product, the broadest measure of goods and services produced across the economy, was the steepest quarterly contraction since the last recession and signaled the end of the longest expansion on record.

Consumer spending drove the drop, falling at a seasonally adjusted annual rate of 7.6%, the largest decline since the second quarter of 1980, the Commerce Department said on Wednesday. The quarter also saw a sharp decline in business investment, with the fall-off in consumer and business spending only partially offset by gains in government spending and residential investment.

“We’re going to continue to watch the economy flounder around for a while before it’s able to find its footing,” said Steve Rick, chief economist at CUNA Mutual Group, in a commentary. “Looking ahead, I still think the worst is probably yet to come for GDP,” he added.

The three-month contraction was the first time quarterly economic output shrank since the first quarter of 2014, when it declined at a 1.1% pace, and represented the steepest rate of decline since the fourth quarter of 2008, during the last recession, when it dropped 8.4%.

The Commerce Department report came hours ahead of a scheduled rate announcement from policy makers at the Federal Reserve, who will conclude a two-day policy meeting later Wednesday.

Stock futures advanced ahead of the Fed meeting’s conclusion, after which policy makers are expected to provide an update on the economy.

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The Commerce Department report said the decline in first-quarter GDP was, in part, due to the response to the spread of the coronavirus and stay-at-home orders issued 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 report said.

GDP acts as a scoreboard for the economy by measuring all goods and services produced. Its biggest component is consumer spending, which accounts for about two-thirds of the measure. First-quarter spending fell at a 7.6% annualized rate, after rising 1.8% in the fourth quarter, as social-distancing measures closed bars, restaurants and malls.

“We are in the worst economic event that we have faced as a nation and globally since the Great Depression,” Evan Greenberg, chief executive of insurance giant Chubb Ltd. said during an earnings call last week.

“The economy is shut down. The opening of the economy is going to take time, and it’s not going to happen in a smooth way. And no one knows for sure the shape or size or duration,” he added.

Spending on durable goods like new cars and appliances decreased at a 16.1% pace, while spending on nondurable goods rose 6.9%, likely a reflection of stockpiling on essentials like food and paper towels.

The Commerce Department data also offered evidence of shrinking corporate demand.

Nonresidential fixed investment—which reflects business spending on software, research and development, equipment and structures—fell at an 8.6% rate—marking the fourth straight quarter of decline.

The pace of exports dropped 8.7% in the first quarter, while the rate of imports fell by a greater amount, 15.3%, as Americans cut back on purchases of foreign goods.

The housing sector was a boon to the economy as residential investment rose at a 21% annual pace. The boost likely reflected lower short-term interest rates and mild weather propelling construction and improvements early in the quarter.

Total government expenditures were up at a 0.7% annual rate in the first quarter.

Vacations To Go, a travel agency that specializes in cruises, was coming off its best ever year in 2019 until “the floor fell out” in February as coronavirus outbreaks on cruise ships dealt a punishing blow to the industry, Chef Executive Emerson Hankamer said.

“As news grew, our business began to wane,” he said. The Houston-based company had 950 employees before the coronavirus pandemic, a number that has dropped to about 200.

“We’re hoping it’s a furlough, but there’s not a lot of clarity,” he said, “There’s a little bit of new business, but most of it is taking care of cancellations or rebooking.”

Headed into 2020, Paul Feder, 34 years old, said he could tell his local economy was booming because the waterfront houses on Lake St. Clair in his hometown of Grosse Pointe, Mich., went big in decorating their homes with Christmas lights.

“You could just tell that more people were feeling it,” he said, referring to the strong economy in the Detroit suburb. Mr. Feder was in the second round of interviews for his dream job as a business developer at an online retailer.

Now the company he hoped to work for has implemented a hiring freeze, and Mr. Feder expects to lose his current job as a digital-marketing manager. “It’s a roller coaster, every single day,” he said. “It’s just a lot of uncertainty and very difficult to map out what the future holds.”


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