August 2020 National Economic Outlook

Steepest Contraction in U.S. History in Second Quarter, But Economy Is Starting to Pick Up

Executive Summary

U.S. real GDP contracted 31.6 percent at an annualized rate in the second quarter, according to the second estimate from the Bureau of Economic Analysis. This was by far the worst quarter for GDP in the history of the series, going back to 1947. This does not mean the U.S. economy contracted by almost one-third in the second quarter; the annualized number means that the economy would have contracted by 32 percent if the pace of decline in the second quarter lasted for an entire year.

Since real GDP fell 5.0 percent annualized in the first quarter, the U.S. economy contracted 10.2 percent at an unannualized pace in the first half of 2020; that is, the U.S. economy was about 10 percent smaller in the second quarter of 2020 than it was in the fourth quarter of 2019. To put that in context, during the Great Recession, the previous worst U.S. economic downturn since the Great Depression, real GDP fell a total of 4.0 percent over six quarters. 

PNC’s August forecast was prepared before the release of the second estimate, so it shows a 32.9 percent decline in the second quarter, based on the BEA’s advance estimate.

Although there was a record contraction in real GDP in the second quarter as a whole, economic activity has been picking up since May as states have allowed more activity. Retail sales in July were almost 2 percent above their February, pre-recession level. Total consumer spending through July, adjusted for inflation, has made up about three-quarters of the initial plunge between February and April. 

Housing is a particular source of strength. Record-low mortgage rates have spurred homebuying and homebuilding. Sales of new and existing single-family homes were at their highest levels since 2006 in July, and housing starts have made up most of their losses since the spring.

The improving labor market is another indicator of the nascent recovery. The U.S. added 1.76 million jobs in July. Although this was down from the record 4.79 million jobs added in June, it was still the third-largest gain on record. While employment has increased by 9.2 million in the three months through July, it is still down by 12.9 million, or 8.4 percent, from the all-time high in February. The unemployment rate fell to 10.2 percent in July, from 11.1 percent in June and a record-high 14.7 percent in April. Unemployment remains extremely elevated, however; the rate was as low as 3.5 percent in February.

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August National Economic Outlook

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