Notes on First Quarter 2020 GDP

Some charts and notes on the advance estimate for 2020Q1 GDP, released this morning (https://www.bea.gov/news/2020/gross-domestic-product-1st-quarter-2020-advance-estimate). First quarter growth only includes some of the pandemic related impacts, as the economy was running smoothly through February and into early March. So the trends are likely to be magnified in the second quarter numbers. Also, these are advance estimates and might have large revisions as the U.S. Bureau of Economic Analysis gets more data.

U.S. GDP declined 4.8 percent at an annualized rate, the largest quarterly decline since the Great Recession.

Consumption makes up about two thirds of U.S. GDP so such a large decline means consumer spending likely pulled back. Indeed it did, with personal consumption expenditures contributing 5.3 percentage points to the 4.8 percentage point decline in GDP. This means that other components of GDP actually posted modest growth in the first quarter.

There was some good news in the report. Ahead of the pandemic shutdowns the U.S. housing market was starting to gain momentum, with residential investment adding almost three quarters of a percentage point to first quarter growth.

When the U.S. economy starts to open up again housing may well be poised to help drive the recovery. Indeed, this morning I noted that home purchase applications, which had been contracting sharply in recent weeks, may have found a bottom and started to rebound. We'll have to keep watching to see how things evolve.