• Annualized US GDP falls 32.9% in the second quarter as virus cripples economy.
  • GDP decline was the most in a century of records but less than the -34.1% forecast.
  • Initial jobless claims rise for the second week and continuing claims increase.
  • High frequency data shows a slowdown in economic activity.
  • Equities, credit yields and the dollar fall after release.

The Covid pandemic and its attendant closures have plunged the US economy into its fastest and deepest decline in history worse even than the Depression or the financial crisis.

Gross domestic product fell 32.9% on an annualized basis in the second quarter, according to the first release from the Commerce Department.  This estimate will be revised twice at one month intervals. Economists in the Reuters survey had forecast a 34.1% decline. The drop from the prior quarter was 9.5%.  

US GDP

FXStreet

 

This recession began in March when economic activity collapsed as much of the country was locked in and the downturn was enough to drag the entire quarter, which had been expanding at about 3% in January and February, down to -5% for the three months.

In comparison the worst quarter of the financial crisis saw an 8.4% drop at the end of 2008 and in the first three months of 1958 GDP fell 10%.

GDP composition

Personal spending, which normally comprises about 70% of US GDP, subtracted about 25% from second quarter.  The service sector accounted for the majority of the decline as people stayed at home for two months all but ending health care, recreation dining and entertainment spending.

Overall consumer spending fell at a 34.6% annual rate in the second quarter.

There were also sharp contractions in the other major GDP categories of business investment and net exports.  Business purchases for research, equipment and construction dropped at a 27% annual rate.  Federal government spending rose as stimulus and unemployment benefits were paid.

Jobless claims

An increase in initial jobless claims in the last two weeks suggests that the rising number of Covid cases in a number of states is having an impact on the labor market.  

Claims climbed to 1.434 million in the July 24 week after reversing 15 weeks of improving figures on July 17. The number of people receiving benefits increased by 867,000 to 17.018 million, the first gain since the week of May 22.

Initial jobless claims

FXStreet

Federal Reserve Chairman Jerome Powell noted yesterday in his news conference following the FOMC meeting that the “pace of the recovery looks like it has slowed since the cases began to spike in June.”

Information from credit- and debit-card purchases show spending rising into early June and then flattening with similar data on restaurants and bars.

Not all consumer spending is slowing.  Purchases of large ticket items that were deferred when the economy was shut, like homes, cars and large appliances rose in June.  

Employment also jumped 4.8 million in June after adding 2.8 million in May. Non-farm payrolls are expected to add 2.260 million workers in July when it is reported on August 7.  If accurate the economy would have recovered about half of the jobs lost in April.

Consumer confidence is starting to reflect the incomplete recovery. The two major surveys have declined in June, the Conference Board reading to 92.6 from 98.3 and the Michigan preliminary for July to 73.2 from 78.1 in June.

Conclusion and markets

Though the second quarter GDP debacle was not quite as bad as forecast, when combined with the fading prospects for July as the pandemic continues to undermine growth, markets are beginning to price an extended and weak US recovery.

Treasury yields fell with the 10-year shedding four points to 0.54% and the 2-year dropping one point to 0.121% (3:05 pm EDT).  One hour before the close the Dow was off 254 points, 0.96% and the S&P 500 was down 17 points, 0.49%.

The dollar lost ground against the euro, which climbed above 1.1800 for the second day, the yen where it dropped below 105.00 and the sterling which reached its highest since March 9.  

The Swiss franc climbed to its best level against the dollar since January 2015.  The aussie and the kiwi were essentially unchanged. Only versus the Canadian dollar did the greenback rise.  

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 recovers towards 1.1750 as risk-on rules

EUR/USD is back around 1.1750 as upbeat US data fueled equities' early rally. Concerns about economic progress remain in the background, as the pandemic keeps taking its toll. 

EUR/USD News

GBP/USD bounces from 1.30 as demand for the dollar eases

Dollar's corrective advance seems complete, now down against most major rivals. GBP/USD trades little changed for a second consecutive day in the 1.3060/70 price zone. Market players continue to ignore upcoming Brexit chaos.

GBP/USD News

Gold: Interesting Fibonacci extension projects a move to $2500

Gold has risen 10.74% in the month of July, the biggest monthly increase since February 2016. As the price is breaking all-time highs it's hard to say where the yellow metal could end up.

Gold News

ETH/BTC skyrocketing, Bitcoin stays above $11,000

The cryptocurrency market is influenced by leveraged positions liquidation. Cryptocurrency experts expect further growth amid a global flight to safety assets. ETH/BTC hits the highest level since May 2019.

Read more

WTI drops below $40 on demand worries, OPEC+ output increase

Crude oil prices posted losses last week and seem to be struggling to shake off the bearish pressure on Monday. As of writing, the barrel of West Texas Intermediate (WTI) was trading at $39.85, losing 1.5% on a daily basis.

Oil News

Forex Majors

Cryptocurrencies

Signatures