Economy plunges 31.4% in spring but big rebound expected

[Omaha Steve]

Source: AP

By MARTIN CRUTSINGER

WASHINGTON (AP) — The U.S. economy plunged at a record rate in the spring but is poised to swing to a record increase in the quarter that is just ending.

The Commerce Department reported Wednesday that the gross domestic product, the economy’s total output of goods and services, fell at a rate of 31.4% in the April-June quarter, only slightly changed from the 31.7% drop estimated one month ago.

The new report, the government’s last look at the second quarter, showed a decline that was more than three times larger than the previous record-holder, a fall of 10% in the first quarter of 1958 when Dwight Eisenhower was president.

Economists believe the economy will expand at an annual rate of 30% in the current quarter as businesses have re-opened and millions of people have gone back to work. That would shatter the old record for a quarterly GDP increase, a 16.7% surge in the first quarter of 1950 when Harry Truman was president.



FILE - In this Sept. 2, 2020 file photo, pedestrians walk past a business storefront with store closing and sale signs in Dedham, Mass. The U.S. economy plunged at a record rate in the spring but is poised to break a record for an increase in the just-ending July-September quarter. The Commerce Department reported Wednesday, Sept. 30, that the gross domestic product, the economy’s total output of goods and services, fell at a rate of 31.4% in the April-June quarter, only slightly changed from the 31.7% drop estimated one month ago. (AP Photo/Steven Senne)



Read more: https://apnews.com/article/dwight-eisenhower-gross-domestic-product-archive-economy-42b79397f8f796ce61486a98346142bd

[progree]

1. It often happens that the headline is incorrect. It fell at a 31.4% ANNUALIZED RATE in Q2

as the body of the article says (specifying rate but that means annual rate).

It actually fell 9.0% during the quarter.

I wish headline writers weren't so sloppy. I find this kind of mistake all the time in mainstream (and non-mainstream) media reporting.

The first estimate was -32.1%, the 2nd estimate was -31.7%, and the 3rd and final estimate that came out today is -31.4% annualized rates.

From the ultimate source of the number:
https://www.bea.gov/data/gdp/gross-domestic-product

Real gross domestic product (GDP) decreased at an annual rate of 31.4 percent in the second quarter of 2020, according to the “third” estimate released by the Bureau of Economic Analysis. The change was 0.3 percentage point higher than the “second” estimate released in August. In the first quarter of 2020, real GDP decreased 5.0 percent.

(emphasis added by Progree)

This translates to an actual drop of 9.0%.

(1-0.314)^(1/4) = 0.9101 , 1 - 0.9101 = 0.0899 = 8.99% = 9.0%

Also of interest:

The government will not release its July-September GDP report until Oct. 29, just five days before the presidential election.

This will be the first estimate of Q3 GDP. It is expected to be +30% annualized rate, according to the article, and I'm sure the Trumpsters will be making an enormous hoo hah about that

Note that a +30% does not come near to cancelling out a -31.4%:

Just illustrating using the annualized number, as if this rate had occurred over an entire year:

Indexing the economy at the beginning as 1.00:

A drop of 30% takes the economy to 70% of it's former level, from 1.00 to 0.70. It takes a 42.9% increase from the 0.70 level to get it back to the 1.00 level: 0.70 * 1.429 = 1.00 .

Meaning an annualized rate increase of 42.9% is needed to cancel out an annualized rate drop of 30%.

[Historic NY]

2. Its isn't going to get better until the virus is under control

Small Business's are still boarding up because they can't adapt. They seem to discount the infection rate creeping up. Places are still letting employee's go. Where I live we just lost another air carrier Jet Blue has now closed up. The Port Authority has place contracts on hold for the new terminal. A new international terminal now mothballed. We are down to Allegient to the Hellscape in Florida. a puddle jumper to Detroit, American shuttle to Philly (maybe)

As the weather get colder places with only outside seating are going to take a hit. Summer business what there was of it will be shuttering.

[Sherman A1]

4. Precisely

That is exactly the answer.

[Igel]

13. But it has been getting better,

demonstrably and obviously.

Perhaps "it can't get back to the record low unemployment we had before" is better than saying no improvement is possible.

[Historic NY]

14. Allstate Insurance is laying off and closing offices...

[link:https://www.marketwatch.com/story/allstate-to-lay-off-employees-close-offices-in-restructuring-plan-2020-09-30|]

American Airline 19000

[link:https://www.marketwatch.com/story/american-airlines-to-furlough-19-000-workers-as-aid-program-set-to-expire-11601513107?mod=home-page|

[still_one]

3. With Disney, Shell, and other companies announcing tens of thousands of layoffs, I am not sure where

these so-called economists are coming from regarding a 30% increase

[klook]

5. Apparently, "the economy" is this weird thing

that’s separate from ordinary people’s lives. I’m sure at some point the largesse of rich people will “trickle down” on the rest of us.

[still_one]

6. I just don't like the color of that "trickle"

[klook]

9. Yep. (nt)

[progree]

7. I think they must be assuming some stimulus. Otherwise there is no way.

Not to mention that new Covid cases in the U.S. are up 13% in the past 14 days (7 day moving average) -- doubt they are factoring in more restrictions and shutdowns that will almost certainly be needed.

https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html

Some of the states are just horrific (scroll down the page to see the mini-charts of the individual states)

I am not sure where these so-called economists are coming from regarding a 30% increase

[still_one]

8. Time is running out fast for any stimulus this year

[BumRushDaShow]

10. Pretty much many in the travel and hospitality industry as well

such as American Airlines (announced back in August) -

American Airlines plans 19,000 furloughs, layoffs in October
By DAVID KOENIG
Wednesday, August 26, 2020


American Airlines said will cut jobs in October as it struggles with a sharp downturn in travel because of the pandemic.
DALLAS -- American Airlines said Tuesday it will cut more than 40,000 jobs, including 19,000 through furloughs and layoffs, in October as it struggles with a sharp downturn in travel because of the pandemic.

American executives said the furloughs can only be avoided if the federal government gives airlines another $25 billion to help them cover labor costs for six more months.

The airline said 23,500 employees have accepted buyouts, retired early or taken long-term leaves of absence, but that was not enough to avoid involuntary cuts.

The furloughs of union workers and layoffs of management staff announced Tuesday will fall heaviest on flight attendants, with 8,100 being terminated in October. American began the year with about 140,000 employees but expects fewer than 100,000 to remain in October.

https://abc7chicago.com/american-airlines-layoffs-job-cuts-employees/6390108/

But then these figures wouldn't be reflected until the November UE report AFTER the election.

[mahatmakanejeeves]

11. Thanks. I had forgotten all about this.

I followed the link progree provided. The "annual rate" thing escapes a lot of people.

EMBARGOED UNTIL RELEASE AT 8:30 A.M. EDT, Wednesday, September 30, 2020 BEA 20-48

Gross Domestic Product (Third Estimate), Corporate Profits (Revised), and GDP by Industry (Annual Update), Second Quarter 2020

Real gross domestic product (GDP) decreased at an annual rate of 31.4 percent in the second quarter of 2020 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.

The “third” estimate of GDP released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the decrease in real GDP was 31.7 percent. The upward revision with the third estimate primarily reflected an upward revision to personal consumption expenditures (PCE) that was partly offset by downward revisions to exports and to nonresidential fixed investment (see "Updates to GDP" on page 3).

{snip}

[Bengus81]

12. Opening....yeah we just had a fresh 2000+ cases here in Kansas over the weekend

Their nuts with that theory but they can stick too it.