April 2020 National Economic Outlook

Viral Recession Started in March with Big Contraction in GDP, Drop in Jobs; UI Claims Point to Much Worse to Come

Executive Summary

Real GDP contracted 4.8 percent at an annualized rate in the first quarter according to the advance estimate from the Bureau of Economic Analysis, worse than the consensus expectation for a 4.0 percent decline. The coronavirus pandemic and restrictions on movement led to big declines in consumer spending and business investment (down 7.6 percent and 8.6 percent annualized, respectively).

This was the first quarter of economic contraction in the U.S. since 2014, and the biggest drop in economic output since 2008, during the Great Recession. There are likely to be big revisions to GDP over the next few months, and beyond. Many of the data in the advance release are estimated, and updated source data are likely to show a larger drop in output.

The coronavirus pandemic is hitting the U.S. labor market extremely hard, with the March jobs report much worse than expected.

  • The U.S. economy lost 701,000 jobs over the month, the biggest one-month drop in employment in 11 years. The consensus was for a drop in employment of 100,000.
  • There were enormous job losses of 459,000 in leisure/hospitality services (restaurants and hotels), but employment fell in most other industries as well.
  • March was the first month of net job losses since September 2010. 

Prior to the start of the Viral Recession, job growth averaged 224,000 in the three months through February 2020. The unemployment rate rose by 0.9 percentage point in March to 4.4 percent. This was the highest unemployment rate since August 2017, and the biggest one-month increase in the rate since 1949.

As bad as the March job report was, April’s report (to be released May 8) will be much, much worse. Initial claims for unemployment insurance, which were slightly above 200,000 in early March, jumped to 6.9 million at the end of March, about ten times the previous all-time high, in 1982. Claims fell by about 45 percent over the course of April, but are still running at almost 20 times their pre-recession levels.

Data on U.S. economic activity in March demonstrate the toll the pandemic and public health response are taking on the economy. Consumer spending was down 7.3 percent over the month after inflation, with unit auto sales down 40 percent. Spending at restaurants and bars plunged 26 percent; housing starts fell 22 percent.

Given that restrictions on movement only took hold in the second half of the month for most of the U.S., the April numbers will be far worse.

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April National Economic Outlook

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