What Today’s GDP Numbers Mean for the Economy

In the latest report on the state of the economy, the dreaded word reappears: recession .

The U.S. gross domestic product (GDP) fell 4.8% in the first quarter of 2020, according to a report from the U.S. Department of Commerce . The last time we experienced such a strong drop was in 2008.

GDP is a measure of the size of an economy based on factors such as consumer spending, business investment, and exports. It is measured quarterly. Consumer spending has not fallen as rapidly since 1980, according to a report from the US Department of Commerce.

“Today’s GDP figures are weak but in line with expectations as a result of the disruption to daily life at home and around the world caused by COVID-19 that has shaken global markets and supply chains,” said Wilbur Ross, US Secretary of Commerce. , in the statement .

Last year, economists spoke hoarsely about the likelihood of the US entering another recession after a long period of sustained growth. But by the time that winter arrived, the tune had changed and now spoke of slow economic growth, not recession.

Then the coronavirus showed up and changed everything. Now, with this new report, we’re back to headings like this:

If the disaster of 2008 is still fresh in your minds, you will probably feel stomach-churning at the headlines. But one shoddy GDP doesn’t mean a recession. This is one of the factors that contributes to this. Rising unemployment, a downturn in the stock market, and an inversion of the yield curve also contribute to determining that a country has entered a recession.

Let’s take a look at some other factors to allay your concerns for a nanosecond before you go back to not touching your face.

Here’s the S&P 500 for a quick and quick look at the stock market. It’s a coup, but not terrible.

Unemployment is a very annoying factor (which probably doesn’t surprise you). But we don’t have the whole picture yet. While we have data on new jobless claims, we do not have an updated unemployment rate yet. And we won’t get the April report until May 8th .

So this little spike that you see on the right side of the graph below is going to get really horrible in a few weeks.

But the role of GDP cannot be ignored here, because it partly measures consumer spending. And you know what consumers aren’t doing that much right now? Costs! Even if you’ve gotten rid of pandemic stress by shopping online, you’re probably not doing the mundane things like “discretionary means” like planning and booking vacations, dining out, or going to concerts or sporting events. … And the fact that the lack of consumer funds circulating in the economy is a serious blow.

This is why sharp fluctuations in GDP now seem to be such a clear indicator of an economic crisis.

But here’s another factor to keep in mind that we mentioned earlier : Recessions, defined as a period of economic downturn of six months or more, are declared retroactively.

The National Bureau of Economic Research, which lists recessions and their duration, does so in hindsight. (The Great Recession was not named until November 2008, although it actually began in December 2007). So, there is no way to know for sure that there will be a recession until you get into it.

We may indeed be in the early stages of a recession, but until the NBER makes a decision, this is all speculation based on the available data.

A neighborhood worth looking out for? “The one we’re in now,” said Mark Hamrick, senior economic analyst at Bankrate . “The sharp decline in economic growth in the country in the first three months of the year augurs well for a broader historical downturn in the current second quarter,” he said. “This is an impact since isolation began in March in response to the Covid-19 pandemic.”

The worst, he said, is yet to come: the Congressional Budget Office estimates we will see GDP decline by nearly 40% in the second quarter. “It’s a bit like a chain reaction accident,” Hamrick said. “One serious accident followed by a head-on collision.”

We have not yet reached the point where we know how much land the economy will have to overcome when it starts to reopen after the pandemic. So for now, all you can do is keep track of your finances by accumulating your savings and investing wisely. The rest is just speculation, at least for a few more months.

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