US: We look for real GDP to contract in excess of 20% in Q2 – Wells Fargo

Real GDP in the United States (US) contracted at an annualized rate of 4.8% during the first quarter, showed data released on Wednesday. Analysts at Wells Fargo consider the decline would excess 20% during the second quarter. They see a recovery starting in the third quarter. 

Key Quotes: 

“There was little good news in the underlying data, and the contraction that occurred in the first quarter is just a hint at what is to come in Q2. There were broad-based declines across most spending categories. Specifically, real personal consumption expenditures (PCE) dropped 7.6% in the first quarter, the steepest rate of decline in forty years.”

“Although purchases of non-durable goods jumped 6.9%, which reflects the surge in spending at grocery stores in late March, spending on big-ticket durable goods nose-dived 16.1%. Incredibly, spending on services, which generally grows even during recessions, slumped more than 10% as travel ground to a halt, sporting arenas and restaurants closed and patients cancelled non-essential visits to their doctors and dentists. To put the swoon in services spending in Q1 into perspective, consider that the next steepest rate of decline was the 3.0% drop that occurred in all the way back in Q4-1953.”

“Real GDP would have contracted even more had imports not collapsed as much as they did, which is hardly a sign of strength.”

“Most of the economy was open through midMarch. The lockdown of the economy, which occurred in most states, did not really start to take effect until mid-March/early April.”

“We look for real GDP to contract at an unprecedented annualized rate in excess of 20% in Q2-2020. Furthermore, we expect that the unemployment rate will surge to more than 15% in April or May.”