Although economic activity in the United States rebounded in May and June with the lifting of the home stay order, it almost remained stagnant throughout April, and the weak gains in May and June were not enough to offset the huge decline in April. The market expects that under the drag of consumer spending, the upcoming second quarter GDP of the United States will plummet by 34.8%, marking the largest decline since World War II.

At 08:30 am Eastern Time on Thursday (July 30th) (20:30 Beijing Time on Thursday), the second quarter GDP data of the United States will be released.

The market expects that the initial annualized quarterly rate of actual GDP in the United States in the second quarter will be -34.5%, while in the first quarter, this data will be -5%; The initial quarterly rate of actual personal consumption expenditure in the second quarter of the United States was -34.5%, while in the first quarter, it was -6.8%; The initial annualized quarterly rate of the core PCE price index in the second quarter of the United States was -0.9%, compared to 1.7% in the first quarter.

According to data from the Bureau of Economic Analysis dating back to 1947, if GDP contracted at an annual rate of 34.5% as expected, it would record the largest decline on record. Before the pandemic, the worst GDP data appeared in the first quarter of 1958, when GDP decreased at an annualized rate of 10%.

European and American economies

In contrast, in the first quarter of 2020, economic activity in the United States contracted by only 5%, as the impact of the pandemic only began to manifest at the end of the first quarter and businesses began to shut down in March.

Analysts have a relatively large range of estimates for the decline in GDP in the second quarter. Mizuho Securities expects a 25% decline in US GDP in the second quarter. Some pessimistic economists even predict a GDP decline of up to 40%. The Atlanta Federal Reserve's GDPNow tool predicts that the US GDP will decline by 32.1% in the second quarter.

Consumer driven downturn

The main reason for the significant decline in economic activity in the second quarter is a decrease in consumer spending, with Thursday's report expected to show a 34.5% decrease in personal consumption indicators. Consumer spending accounts for about two-thirds of the US economy and was the main engine of economic growth before the pandemic.

Due to the outbreak of the coronavirus, companies were forced to close from mid March. According to data from the US Department of Commerce, US retail sales fell by a record 14.7% in April, and then rebounded in May and June.

In addition to personal consumption, the market expects a 40% decline in residential investment, a 50% decline in equipment expenditure, and a drag on net exports and inventory, all of which may be the reasons for a significant contraction in GDP.

Compared to previous economic downturns, a sharp decline in investment and inventory is usually the biggest driving factor, while the recession caused by the coronavirus is mainly due to people being forced to stay at home due to lockdown measures, resulting in an unprecedented decline in consumption, "said Ian Shepherdson, Chief Economist at Pantheon Macroeconomics.

Commercial and residential investment has also declined, but the overall decline is relatively small, "he added." At the same time, despite significant fiscal stimulus measures, the vast majority of these funds have been transferred to individuals and businesses. Due to budget shortages, state and local government spending has shrunk, so government spending may have a slight negative impact on economic growth

Will there be a strong rebound in the second half of the year?

Market analysis suggests there is hope for a strong rebound in the US economy in the second half of the year, but given that the recovery has shown signs of stagnation, economic activity may be lower than before the pandemic.

A Bloomberg survey report in early July showed that economists expect the US GDP to grow at an annualized rate of 18% in the third quarter, breaking the record set in the first quarter of 1950, when GDP growth reached 16.7%.

However, as the epidemic in the southern and western United States becomes increasingly severe, many states have suspended or even cancelled their economic restart plans. Barclays US economist Gapen pointed out that if it continues to deteriorate, US GDP will shrink in the fourth quarter.