Q2 2020 economic collapse is one for the history books

Due to COVID-19-linked shutdowns in late March and April, and the slow reopening that followed, we knew the 2nd Quarter of 2020 was going to have a historic decline in the nation's Gross Domestic Product (GDP). Today we found out just how much bad it was. <

BREAKING: The US economy had its worst quarter on record in Q2.

GDP fell at a 32.9% annualized rate in Q2.
That means the economy shrank by ~10%.

This is the result of the Great Lockdown. It was done to fight the coronavirus, but at a great cost.

— Heather Long (@byHeatherLong) July 30, 2020

Wow, this chart from @andrewvandam

US economic output had its worst quarterly drop on record in Q2, wiping out about 5 years of growth.

GDP went from:
$19.3 trillion in Q4 2019
$19.0 in Q1 2020
$17.2 trillion in Q2 2020 -->similar level to Q1 2015https://t.co/4mboN1OalR pic.twitter.com/fqDFDU4zlQ

— Heather Long (@byHeatherLong) July 30, 2020

The big reason? Consumer spending collapsed, causing nearly 80% of that $1.8 trillion annualized decline, and dropping GDP by over 25%.

Even the largest increase you see in that chart reflects the lack of buying, because it's a large drop in imports that "grew" GDP by 10% last quarter.

There was quite a variation on how consumers' spending habits changed in the COVID World of Q2. Some sectors even had more spending, particularly the automotive sector. On the flip side, several other industries saw spending plummet, due to the lack of travel, lack of sports, lack of live shows, and lack of people going to the doctor if they didn't have COVID.

Remarkably, the official report from the Commerce Department says the drop in GDP is even larger in actual dollars, as deflation hit hard in the 2nd Quarter.

Current‑dollar GDP decreased 34.3 percent, or $2.15 trillion, in the second quarter to a level of $19.41 trillion. In the first quarter, GDP decreased 3.4 percent, or $186.3 billion (table 1 and table 3).

The price index for gross domestic purchases decreased 1.5 percent in the second quarter, in contrast to an increase of 1.4 percent in the first quarter (table 4). The PCE price index decreased 1.9 percent, in contrast to an increase of 1.3 percent. Excluding food and energy prices, the PCE price index decreased 1.1 percent, in contrast to an increase of 1.6 percent.

This fall in prices and economic activity happened despite a huge amount of money being pumped out to Americans due to stimulus checks and the higher amount of unemployment benefits, which was a much larger amount than the wages and salaries that were actually lost for the quarter.

That's an annualized bump of $1.4 trillion in income between these three sources. And we still had a massive decline in consumption with all that extra money floating around.

Now, the $600 weekly add-on for unemployment is going away as Ron Johnson and other Senate Republicans dither around, and wages and salaries won't come close to picking up that slack. Certainly not in a time when more than 1.4 million people are going (back) onto the unemployment rolls each week - a number that rises to more than 2.25 million when you add in the PUA program for the self-employed and gig workers.

So how are we going to see a bump in consumer spending that could get this economy back toward where it was at the start of 2020, if there is this huge drop in income, and people with jobs aren't going to be willing to go out as much with COVID-19 at record levels? And then the individuals losing their expanded unemployment benefit can't pay their bills, which means an even larger loss of business income.

Then throw in the reality that businesses don't have to keep people on the payroll to have their PPP loans forgiven? It feels like things could cascade.

Even if there is a cosmetic increase in GDP for Q3, we still seem likely to be in a bigger economic hole on Election Day than we saw at any time during the Great Recession. With not much coming down the pike to get us out of that hole.