US: We look for real GDP to contract in excess of 20% in Q2 – Wells Fargo
Real GDP in the United States (US) contracted at an annualized rate of 4.8% during the first quarter, showed data released on Wednesday. Analysts at Wells Fargo consider the decline would excess 20% during the second quarter. They see a recovery starting in the third quarter.
Key Quotes:
“There was little good news in the underlying data, and the contraction that occurred in the first quarter is just a hint at what is to come in Q2. There were broad-based declines across most spending categories. Specifically, real personal consumption expenditures (PCE) dropped 7.6% in the first quarter, the steepest rate of decline in forty years.”
“Although purchases of non-durable goods jumped 6.9%, which reflects the surge in spending at grocery stores in late March, spending on big-ticket durable goods nose-dived 16.1%. Incredibly, spending on services, which generally grows even during recessions, slumped more than 10% as travel ground to a halt, sporting arenas and restaurants closed and patients cancelled non-essential visits to their doctors and dentists. To put the swoon in services spending in Q1 into perspective, consider that the next steepest rate of decline was the 3.0% drop that occurred in all the way back in Q4-1953.”
“Real GDP would have contracted even more had imports not collapsed as much as they did, which is hardly a sign of strength.”
“Most of the economy was open through midMarch. The lockdown of the economy, which occurred in most states, did not really start to take effect until mid-March/early April.”
“We look for real GDP to contract at an unprecedented annualized rate in excess of 20% in Q2-2020. Furthermore, we expect that the unemployment rate will surge to more than 15% in April or May.”
Author
Matías Salord
FXStreet
Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.
