Still, it was the worst drop ever, with the closest coming in mid-1921.
Domestic purchase prices, a key indicator of inflation, fell 1.5% over the period, compared to a 1.4% increase in the first quarter when GDP fell 5%. Personal consumption spending fell 1.9% after a lukewarm 1.3% increase in Q1. Excluding food and energy, “core” PCE prices fell 1.1%.
However, personal income has skyrocketed, largely thanks to government transfer payments associated with the coronavorus pandemic. Personal income in current dollars increased more than six-fold to $ 1.39 trillion, while personal disposable income soared 42.1% to $ 1.53 trillion.
Despite the rise, personal spending fell $ 1.57 trillion, largely due to lower spending on services.
Neither the Great Depression, the Great Recession, nor any of the more than three dozen economic downturns over the past two centuries has ever caused such a brutal leak in such a short period of time.
By comparison, the worst quarter of the 2008 financial crisis was the 8.4% drop in GDP in the fourth quarter of this year. The previous low water mark was a 10% drop in the first quarter of 1958, while the worst in recorded history came in the second quarter of 1921.
This particular drop in activity owes to a different source than any of its predecessors: a government-induced shutdown aimed at combating Covid-19.
Workers across the country were told to stay home after any jobs not considered essential, resulting in a screeching halt that saw the unemployment rate peak at 14.7%, a post-depression high . The National Bureau of Economic Research said the current recession actually began in February, a month before the pandemic was declared. First-quarter GDP fell 5%.
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