• Annualized GDP expected to be the lowest since the financial crisis.
  • Quarter dragged down by the labor and business collapse in March.
  • Indicators point to an accelerating decline in the second quarter.
  • Dollar and risk aversion could jump from a difficult number.

American economic growth, devastated by the business closures and labor losses ordered in defense of the Coronavirus, is set for the largest quarterly contraction since the financial crisis.

Annualized gross domestic product (GDP), the widest accounting of national economic activity, is forecast to shrink 4% in the first quarter. Prior to the virus the economy was running at about 2.7% according to the Atlanta Fed GDPNow model.

Layoffs and social orders

Since widespread layoffs began in the third week of March over 26 million people, 16% of the workforce have filed for jobless benefits and another 3.5 million are predicted to join the rolls this week.

Continuing jobless claims


About 90% of the US population is affected by voluntary or mandatory social restrictions and whole industries deemed non-essential by various state governments have been shuttered.

The 701,000 job losses in the March non-farm payroll report and the 0.9% jump in the unemployment rate to 4.4% are expected to be the precursors to far larger and higher numbers in April.

Retail sales and durable goods

Retail sales fell 8.7% in March, the largest amount on record, as burgeoning unemployment and ‘stay-at-home orders have drastically curtailed consumer spending, despite the relatively normal economic activity in the first half of the month.  

Retail sales


Durable goods orders dropped 14.4% on the month with a good portion of the decline due to most car dealerships being closed across the country. Excluding the transport sector, Boeing Company of Chicago lost $16 billion on cancelled aircraft orders, goods order slipped just 0.2%, far less than the -5.8% predicted.

Second quarter estimates

Many economic indicators, from purchasing managers’ indexes to regional Fed manufacturing surveys and non-farm payrolls point to an accelerating contraction into the second quarter. Estimates range from 5% to 30% and higher as analysts attempt to model what is truly an unprecedented economic and social event.

China has already reported a 6.8% drop in GDP in the first quarter, the largest of the modern era.

Conclusion: Market interest and the dollar

The spectacular crash and partial recovery in equities, the ascent of the US dollar and bonds and the near historic plunge in crude oil prices all stem from the assumption that the US and global economies have suffered a calamitous decline in economic activity due to the shutdown of normal life. First quarter GDP is but a down payment on that cost.

Preliminary indicators for April point to a much deeper drop in GDP as the full impact of business closures, job losses and spending cutbacks take hold. 

Labor markets have been largely immunized to bad news by the astonishing initial claims figures. Non-farm payrolls and the U-3 unemployment, by the nature of their statistical basis, are unlikely to provide the shock of those first three jobless numbers.

For markets the crucial fact is how much farther the economy will fall in April, May and June. A larger than forecast shrinkage in GDP in the first quarter will force markets to confront the possibility that the decline will be deeper and longer than anticipated.

For the US dollar risk aversion is still the main director of business. The depth of the first quarter GDP decline will help to establish how much damage has been done to US economic life with the dollar moving in opposite reaction.

The wild cards in the analysis are the lifting of business and social restrictions in several states.  If these go well with relatively few complications that will change assumptions about the depth and duration of the presumed recession. Public pressure will, in short order, force most states and the US economy to reopen.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD hits fresh one-month low amid souring market mood

EUR/USD has been extending its falls and dips below 1.21 as US retail sales badly disappointed and the worsening mood is supporting the safe-haven dollar. Markets digest Biden's stimulus plan. US Consumer Sentiment declined to 59.2 points. 


GBP/USD retreats toward 1.36 amid fresh dollar strength

GBP/US has pared its gains and falls toward 1.36 as the dollar gains ground. The UK economy shrank by 2.6% in November, better than estimated. The UK is ramping up its vaccination campaign and PM Johnson is pressured to ease the lockdown. 


Gold extends sideways grind near $1,850

The XAU/USD pair registered small daily gains on Thursday but struggled to extend its recovery amid a lack of significant fundamental drivers on Friday. As of writing, the pair was up 0.15% on a daily basis at $1,849.

Gold news

Forex Today: Markets “sell the fact” on Biden's stimulus, dollar rises, retail sales eyed

Markets are on the back foot after Biden hinted about tax hikes while introducing stimulus. The safe-haven dollar is edging higher despite Powell's pledge to keep monetary policy accommodative. 

Read more

DXY breaks above key downtrend, eyes move above 91.00

USD has been strongly supported on what has shaped up to be a very much risk off final trading day of the week. Most G10/USD pairs have seen significant weakness, aside from CHF/USD and JPY/USD, given that the two currencies are also considered “safe havens”.

US Dollar Index News

Forex Majors