GDP contracts 5% in Q1, largest decline in more than a decade


US real gross domestic product decreased at an annual rate of 5.0% in first quarter of this year, reflecting the response to the spread of Covid-19 as governments issued stay-at-home orders in March, according to the second estimate released today by the US Bureau of Economic Analysis. The new estimate is lower than the “advance” estimate released in April, which pegged the decrease at 4.8%.

It was the biggest quarterly decline since an 8.4% fall in the fourth quarter of 2008 during the depths of the financial crisis, Investment Executive reported.

In comparison, GDP had increased 2.1% in the fourth quarter of 2019.

Much of the decline was driven by a sharp drop-off in consumer spending, especially on elective healthcare procedures, CNN reported.

“While the first quarter was slightly worse than we thought, the decline in the second quarter could be smaller because more of the inventory adjustment had already occurred,” said Michael Pearce, senior US economist at Capital Economics. That said, Pearce still expects a 40% annualized drop in second-quarter GDP, driven by a steep decline in consumption.

The third GDP estimate will be issued June 25.