Business Insider wrote:It's official: The coronavirus pandemic has led to the worst GDP slump in American history.
US gross domestic product fell at an annualized rate of 33% in the second quarter, the Commerce Department said on Thursday. It's the largest fall on record dating back to the 1940s. Economists had expected a roughly 35% annualized drop, according to Bloomberg data.
The historic drop in output reflected the worst months of pandemic-related shutdowns to control the spread of COVID-19 and followed a 4.8% contraction in the first quarter that ended the longest expansion in US history.
In April, much of the country was operating under strict stay-at-home orders that brought much activity to a halt. While activity picked up again in May and June as states started to reopen, it wasn't enough to undo the damage of the lockdowns.
"The decline in second quarter GDP reflected the response to COVID-19, as 'stay-at-home' orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses," the Bureau of Economic Analysis report said.
The US is now grappling with spikes in COVID-19 cases that have threatened to derail the economic recovery from the pandemic recession. Many states have had to pause or roll back reopening plans to deal with new coronavirus cases, weighing on economic activity. Unemployment remains high, and consumer sentiment has slumped.
While stark, the historic GDP figures may appear worse than they are, because they are reported as an annualized rate. The forecast GDP drop of 35% on an annualized basis actually means the economy was about 10% smaller in the second quarter than in the first months of the year.
Still, the economy shrinking by 10% in one quarter is also a record slump. And Thursday's figure is the first of three estimates, meaning it could be revised to reflect an even sharper contraction.
Economists expect that economic activity has picked up as states have reopened; those surveyed by Bloomberg expect that the economy will grow at an 18% annualized rate in the third quarter. Even though that would be a record positive jump, it would still leave GDP far below pre-pandemic levels.
https://www.businessinsider.com/us-q2-g ... ?r=US&IR=T
Well, that's August 2020 for you. So much for the "Trump Economic Boom".
The second quarter GDP report confused many, but any way you slice it, the economy saw its worst quarter in at least 145 years. Now, an individual company dropping by 33% would be a disaster for them. If a third of the entire stock market was Thanos snapped, it'll make terrifying headlines.
The GDP is something else entirely. It reflects the entire US economy. As a comparison for the largest quarterly US GDP drops ever:
- 2008 Great Recession "peaked" at a -8% GDP reduction.
- 1929 Great Depression "peaked" at a -30% GDP reduction.
Firstly, it might important to see where the economy really contracts. GDP is the total of four economic sectors:
- Household Spending: -39%. However, this drop is primarily caused by the fall in the consumption of services, which fell by -49%. It's reasonable to assume that these figures would shoot back up to reasonable levels once it is safe to go out and do so. Meanwhile, despite the doom and gloom about unemployment and pay cuts, average household income actually increased. Since they're spending less on both goods and services, the extra money will now go to either savings or paying off debt. Saving money might result in a slowdown of the current economy, but it means that people will have more to spend later, meaning that recovery can be somewhat achieved. Maybe.
- Government Spending: +11%, driven primarily by the gargantuan stimulus packages (also known as "brrrrrrr") that the US govt handed out to both businesses and private individuals.
- Investment: -49%, an unbelievable figure. This means 1) new businesses aren't getting funded, and 2) those extra cash (a lot came from the Almighty Money Printer) are sitting idle. Normally, saving your money in the bank is good because the bank will lend and invest that money to other sectors. But an investment drop of that magnitude means that even the banks has largely stopped doing that. If this cash isn't spent, it might as well not exist. But if this cash is suddenly circulated rapidly, it'll cause big time inflation. When the pandemic is over, big shots will probably spend the insane amount of cash on an investment spree, but the economic calamity meant only a few mediocre to good investment-worthy businesses survived, the rest has degraded into bad "zombie" companies. So all of the money will then go to reasonable companies, such as Tesla, and jack up the value that it stopped being reasonable and start to resemble a bubble.
- Exports - Imports: -12%. However, this is a *net* figure only concerned about the net difference between export and import. The reality is far worse, as both export and import fell by more than 50% primarily due to travel restrictions. If anything, GDP measurement severely downplays the serious implications of these figures.
Secondly, the -32.9% US GDP shrink is *annualized*, so it does not mean that the economy shrunk by 33% in one quarter (three months). Rather, it mEReLy fell by -9.5%. Extrapolate that for 12 months and you'll get the apocalyptic -32.9% figure.
Forbes wrote:When it reports quarterly GDP, the BEA presents the data several different ways to aid in analysis. Among them, GDP is presented as:That latter, annualized rate projects how much the economy would grow or shrink if the rate of change seen in the quarter continued at the same pace for four consecutive quarters, with some adjustments for seasonality and compounding effects.
- A percentage rate of growth or contraction from one quarter to the next. This figure was -9.5% in the preliminary Q2 GDP report.
- A percentage rate of growth or contraction in the quarter on an annualized basis. This was the -32.9% figure in the preliminary Q2 GDP report.
https://www.google.com/amp/s/www.forbes ... eally/amp/
Thirdly, this is better than expected, because economists predict a contraction of 36%. Instead, it only contracted by 33%. "Yay"!
More significantly, 2020 can be the end of growth as a given. Demand has shrunk despite an increase in household income. And by """household income increase"""", I mean something almost entirely driven by government stimulus whose result is either crippling debt or horrific runaway inflation if real growth isn't able to keep up with the pace of the Almighty Money Printer. One of the most significant sector to come into play is welfare, as govts had set end dates for many specific relief packages. The US's $600 weekly unemployment benefit ends on the 31st of July. If no specific replacement is confirmed, the savings that people will stockpile --a major part for future recovery-- will quickly be sucked into emergency funding needed to buy food and survive. At the *same time*, mortgage and rent relief period is coming to an end (as already discussed by another thread), a.k.a. potential mass evictions of millions.
Added with the investment problem above, this means that average people will have too little money while the rich has too much money that it endangers the economy. But this time will be worse than the past. The 2000 Dot Com bubble is triggered by mad malinvestments in the tech sector, resulting in the collapse of worthless startup companies that largely impacted tech investors. The 2008 financial crisis is triggered by mad malinvestments in the housing market, ending the collapse of worthless subprime mortgage that largely impacted huge financial institutions. Things like this forms the cycle of alternating boom-crash of the modern economy. Boom is caused by a cash surplus leading to a spending spree on unhealthy sectors, resulting in a temporary gain and then a crash.
In 2020, the boom-crash hasn't even happened yet. The pandemic caused a structural recession, Big Rich hoard money, then the govt prints additional money. It is very likely that this money will then be rapidly reinvested into the economy, resulting in a boom-crash cycle. A.k.a., two recessions in a row AND crippling debt from all the printing and spending. Have I mentioned about the millions of potential homeless and record unemployment?
Primary Source: https://www.youtube.com/watch?v=Im0rzTWplwU&t=126s
Good riddance. I don't see these problems getting solved, and let's not forget that Big Banks and the lobbyist army will try to exploit this situation and pillage as much cash from the US govt as possible. Of course, half of this eschatological disaster hasn't happened yet, but I mean come one. Years of low interest rate during a booming economy has resulted in the piling of bad debt anyways, and Covid is just a supercatalyst that successfully exacerbated the crisis to the moon.
Edit: Meanwhile, this is the Europe's condition for comparison. I'm not too informed on EU economics, so I don't have too much to say for now. But TL; DR, they shrank -11.9% in Q2 while the annualized contraction is -40.3%.
Fox Bussiness wrote:The Eurozone suffered its greatest contraction on record, exceeding the U.S. economy’s record plunge.
A report by the European Union’s statistics agency published a report on Friday that showed the trade zone’s GDP contracted by 12.1 percent during the three months through June, which is equivalent to 40.3 percent annualized. That exceeded the U.S. economy’s equivalent 32.9 percent contraction, the Wall Street Journal reported. While most countries report GDP changes between quarters, the U.S. extrapolates GDP over a full year, which makes it easier to compare GDP in different time periods.
The contraction marks the greatest drop in the Eurozone’s GDP since records began in 1995. The largest drops were concentrated in April and May during the most severe lockdown measures in some countries.
The number accounts for the 19-country Eurozone and not the European Union as a whole, though. The wider European Union's GDP shrank 11.9 percent.
https://www.google.com/amp/s/www.foxbus ... record.amp
