1st Quarter GDP down 4.8%; next quarter may be worse. Policymakers explore recovery strategies.

The advance estimate of Q1 GDP from the Bureau of Economic Analysis picks up some of the early effects of the lockdown.

Real gross domestic product (GDP) decreased at an annual rate of 4.8 percent in the first quarter of 2020 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2019, real GDP increased 2.1 percent.

The graph tells the story.

The BEA writes,

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 Wall Street Journal reports,

The 4.8% decline, adjusted for seasonality and inflation, in GDP is the biggest drop in quarterly economic output since the fourth quarter of 2008…

Many economists have said the pandemic has put the U.S. in a recession

Most economists are expecting a larger drop-off in economic activity in the second quarter, with the economy mostly shut down in April. As May approaches, a few states have moved to reopen their economies partially, but many have extended restrictions aimed at limiting the pandemic.

The Associated Press:

The drop in the January-March quarter will be only a precursor of a far grimmer GDP report to come on the current April-June period, with business shutdowns and layoffs striking with devastating force. With much of the economy paralyzed, the Congressional Budget Office has estimated that GDP will plunge this quarter at a 40% annual rate.

That would be, by a breathtaking margin, the bleakest quarter since such records were first compiled in 1947. It would be four times the size of the worst quarterly contraction on record set in 1958.

Contributing to a negative outlook is the decline in consumer confidence, which even as the economy slowed last year remained positive.

The Conference Board said Tuesday that its confidence index tumbled to a reading of 86.9, the lowest level in nearly six years and down from 118.8 in March. The index is composed of consumers’ assessment of present conditions and expectations about the future.

As we wrote yesterday, West Coast employer groups are working together – and with the governors of California, Oregon, and Washington to chart a safe course to economic recovery. How well and how quickly the economy recovers will be in part influenced by the policies put in place in the coming weeks.