GDP falls 4.8% — and it’s only the beginning
The economy was humming in January and February. That changed drastically in mid-March as the pandemic took hold.
We’re starting to get a picture of just how much damage the pandemic is doing to the economy. The Commerce Department reported Wednesday that gross domestic product — the total of all the goods and services this economy produces — fell 4.8% in the first quarter.
Household spending was down about 7.5%. Purchases of services fell more than 10%. And durable goods purchases — cars and appliances and stuff — dropped by more than 16%. Businesses weren’t buying either — equipment spending fell more than 15%. And this is only the beginning.
The economy was cranking along in January and February. Then, in early March, we started to hear warnings about the need for COVID-19 social distancing and statewide lockdowns.
Initially, that sent consumers out shopping to stock up — including at Tom Butcher’s music shop in Seattle.
“They really wanted to get some musical instruments and toys maybe to occupy themselves,” Butcher said. But by the middle of March, his store was shut down. “Most of our business just disappeared.”
Multiply that by tens of millions of businesses across the country, and the economy “just fell off a cliff, and we went from everything being open to everything closed,” said Paul Ashworth, chief North American economist at Capital Economics.
It’s not just stores and restaurants and the like. Spending on health care is down too, according to Betsey Stevenson, professor of public policy and economics at the University of Michigan.
“To make room for COVID patients, hospitals really had to shut down a lot of nonessential treatment,” Stevenson said.
Now, keep in mind, all of these declines happened in the last three weeks of the quarter. The economic shutdown really took hold in April.
“The decline in the second quarter is much bigger than the first quarter. We’re thinking it’s somewhere around 40%,” Ashworth said.
On the plus side, Ashworth notes some states are reopening, people are getting stimulus checks and unemployment and small-business loans. But, that prediction of a 40% decline in GDP this quarter already includes all that stimulus money flowing in.
