US Economy Shrinks 4.8% due to COVID; ATA Economist Surprised at Extent of Damage

The U.S. economy contracted by 4.8% on an annualized rate in the first quarter, according to the U.S. Commerce Department, which released the gross domestic product figures April 29.

According to the Bureau of Economic Analysis, “The decline in the first-quarter GDP was, in part, due to the response to the spread of COVID-19 as governments issued stay-at-home orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations and consumers canceled, restricted or redirected their spending.”

The drop is the sharpest since the GDP plunged 8.4% in the fourth quarter of 2008 during the peak of the financial crisis.

American Trucking Associations Chief Economist Bob Costello told Transport Topics that, after looking at the data, he was surprised by the damage done to the U.S. economy in just March, when thousands of businesses began shutting their doors.

“It was even worse than I thought,” Costello said. “I was expecting it to be 3% or 3.5%. The fact that it was almost 5% makes me very worried about the second quarter. It does give me pause about the second quarter and what’s going to happen there.”

Costello said he has revised his second-quarter GDP projections downward from a 20% to 25% drop to as much as 30% on an annualized basis.

“The second quarter could be worse than we originally thought,” he said. “Essentially, the economy was shut down for two weeks in the first quarter, and this is the second-worst reading this century. There was only one quarter in the 2008 financial crisis that was worse.”

In just six weeks, because of the coronavirus pandemic, the U.S. economy has ended a decade of almost uninterrupted economic expansion, unemployment that was at a 50-year low, and a Dow Jones Industrial Average that nearly reached 30,000.

Spending on durable goods such as cars, appliances and furniture tumbled at a 16.1% pace, but spending on nondurable goods such as food, paper towels and toilet paper rose by 6.9%.

Full story here.

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