US GDP: Broad based spending declines in Q2 – Wells Fargo

The US economy contracted at a record 32.9% during the second quarter. According to analysts at Wells Fargo monthly data suggest that GDP should bounce in Q3. However, they warn uncertainties related to the pandemic to continue to cloud the outlook later this year.

Key Quotes: 

“The only area of growth was the 17.4% rise in federal government spending, which largely reflects the administrative costs of the PPP loans that were extended during the quarter.”

“The big drop in real GDP in the second quarter largely reflects the collapse in economic activity that occurred in late March and April. But monthly data show that the economy bounced starting in May.”

“Our current forecast looks for real GDP to grow at an annualized rate of roughly 18% in Q3.”

“Recent weekly indicators suggest that the economy is losing momentum again as COVID-19 cases have spiked in recent weeks. For example, initial jobless claims, which fell sharply in April and May, have moved sideways at an elevated level of 1.4 million per week recently.”

“Our forecast of continued growth in real GDP in Q4 and in 2021 is predicated on our assumption that a full lockdown of the economy à la March and April will not occur in coming weeks and months. We acknowledge that there may be restrictions re-imposed in localized areas, but we believe that governors will be under tremendous pressure not to return to a full state of lockdown. That said, the economic outlook at this time is dependent on the evolution of the pandemic, which remains highly uncertain.”