US GDP in the first quarter decreased 4.8%, from an expected 3.5% drop

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Gross domestic product fell 4.8% in the first quarter, according to figures released by the government on Wednesday which provide the first detailed look at the deep damage Coronavirus has caused to the US economy.

The economist polled by Dow Jones expected the first estimate of GDP to show a contraction of 3.5%.

This is the first negative reading of GDP since the 1.1% drop in the first quarter of 2014 and the lowest since the 8.4% drop in the fourth quarter of 2008 during the worst of the financial crisis.

The biggest economic downturns were consumer spending, non-residential fixed investment, exports and inventories. Fixed residential investment and federal and state government spending helped offset some of the damage.

Most economists already see the United States in recession, although the technical definition is generally two consecutive quarters of negative growth. The fourth quarter of 2019 saw GDP increase by 2.1%.

This opinion is largely due to the fact that the figures for the first quarter only include a few weeks of the economic shutdown caused by the coronavirus, and even that probably underestimate the real damage.

The Bureau of Economic Analysis itself pointed out in a technical note that the initial reading was probably inaccurate.

The coronavirus lockdown “has resulted in rapid change in demand, with businesses and schools being shifted to remote work or canceling their operations, and consumers canceling, restricting or redirecting their spending. The 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 integrated into the source data and cannot be identified separately, “the office said in a statement. .

When the Commerce Department reviews the initial reading of GDP, the result could show a drop of around 3 to 4 percentage points for a total drop of 8.25%, according to an estimate by Goldman Sachs.

During the financial crisis, for example, the first estimate for the fourth quarter of 2008 was a decline of 3.8%, which more than doubled by the time the government reviewed all the figures. One problem is that with the closure of most businesses – Citigroup estimates that 95% of GDP is under home orders – it was difficult to obtain precise figures on the circulation of goods and services.

“We think the economic reality of the quarter was even worse,” said Spencer Hill, economist at Goldman, in a note. “Larger-than-usual revisions to growth data are common in recessions and other periods of high economic volatility. “

Specifically, retail sales and durable goods orders for March that were not as bad as feared could also indicate data collection problems.

“Reflecting the onset of the US recession and the magnitude of new economic measurement challenges unique to the coronavirus, we believe the gap between growth data and economic reality is large and increasing,” wrote Hill .

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