The U.S. economy declined in the first quarter of 2020 due to the impact of the COVID-19 pandemic. Consumer spending, gross private domestic investment, exports and imports all decreased.
According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) decreased at an annual rate of 4.8% in the first quarter of 2020, following a 2.1% increase in the fourth quarter of 2019 and somewhat worse than NAHB’s forecast of -3.8%. This quarter’s figure marked the first negative growth rate since the first quarter of 2014 and the steepest drop since the first quarter of 2009. The longest economic expansion in history, unfortunately, has come to an end.
The “advance” GDP estimate for the first quarter did not reflect the full economic effects of the COVID-19 pandemic. The BEA mentioned that “stay-at-home” orders in March “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 full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified”.
The decrease in real GDP in the first quarter of 2020 reflected decreases in personal consumption expenditures (PCE), which, alone, accounts for about 70 percent of the overall economy, gross private domestic investment and exports. Meanwhile, imports, which are a subtraction in the calculation of GDP, decreased.
Consumer spending, the backbone of the U.S. economy, fell at an annual rate of 7.6% as stores shut down and millions of people lost jobs. The decline in consumer spending reflected decreases in durable goods and services. Durable goods spending tumbled 16.1% at an annual rate, led by motor vehicles and parts. Expenditures on services decreased 10.2% at an annual rate, mainly reflecting decreases in health care, transportation services, recreation services and food services and accommodations.
While nonresidential fixed investment declined 8.6%, residential fixed investment (RFI) posted strong growth in the first quarter with an annual rate of 21.0%, after rising 6.5% in the fourth quarter of 2019. The change in RFI contributed 0.74 percentage points to the real GDP growth rate in the first quarter, offsetting some of the economic decline to the headline rate.