2020.07.3013:46:00UTC+00U.S. Economy Contracts At Record Pace In Second Quarter

Reflecting the impact of the coronavirus pandemic, the Commerce Department released a report on Thursday showing a record contraction in U.S. economic activity in the second quarter.

The report said real gross domestic product plummeted at an annual rate of 32.9 percent in the second quarter following a 5.0 percent slump in the first quarter.

While GDP showed the biggest quarterly drop on record, the plunge was not quite as steep as the 34.1 percent nosedive expected by economists.

Consumer spending led the decrease, cratering by 34.6 percent in the second quarter, as the coronavirus-induced lockdowns in late March and April forced many consumers to stay at home.

The record contraction in GDP also reflected decreases in exports, private inventory investment, non-residential fixed investment, residential fixed investment, and state and local government spending.

The Commerce Department said the 64.1 percent nosedive in exports was led by capital goods, while the slump in private inventory investment primarily reflected a decrease in retail, particularly motor vehicle dealers.

The drop in non-residential fixed investment primarily reflected a decrease in equipment, while the decline in residential investment primarily reflected a decrease in new single-family housing.

Meanwhile, the report said federal government spending skyrocketed by 17.4 percent, reflecting the implementation of the coronavirus relief bills.

"We already know that activity rebounded strongly in May and June, setting the stage for a strong rise in GDP in the third quarter," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "Nevertheless, with the more recent resurgence in virus cases starting to weigh on the economy in July, a continued 'V-shaped' recovery is unlikely."

On the inflation front, the Commerce Department said the core PCE price index, which excludes food and energy prices, decreased by 1.1 percent in the second quarter in contrast to an increase of 1.6 percent in the first quarter.