Commerce department data released today confirmed what everybody already knew: gross domestic product collapsed faster in the second quarter of 2020 than it has in any other recorded quarter of U.S. history. (This data has been tracked quarterly since 1947.) The U.S. GDP, the widest measure of economic activity, contracted at a 32.9% annualized rate in the second quarter. In the first quarter, the rate of contraction was 5.0%.
Policymakers should realize two things about this completely expected data. First, it shows the utterly enormous scale of recovery the economy needs to mount before it is anywhere close to healthy. To put it simply, it could take years of historically fast GDP growth just to return the economy to the pre-COVID-19 status quo. Second, the today’s quarterly data mask important intra-quarter trends, and they miss troubling developments in the month of July, which we won’t see until the next quarterly data release. Concretely, the economic collapse of the second quarter largely happened in April (though it began in March in the first quarter of the year), with May and June seeing some rapid (but still woefully insufficient) bounceback. But this bounceback is likely to have already ended in July. Next Friday (August 7th) we’ll see data on employment growth in July. Many early data indicators strongly forecast flat or even negative employment changes in July.
The policy response to this should be clear. Even when the economy saw rapid bounceback in May and June, the COVID-19 economic shock inflicted so much damage in earlier months that the net result was an economic catastrophe for the second quarter. Even if this early bounceback had persisted in July, it would’ve needed substantial fiscal aid from Congress to continue. The fact that this bounceback has almost certainly stalled means this aid is even more necessary. Congress and the president need to restore the extra $600 in unemployment insurance so long as the job market remains damaged, and needs to provide large-scale, flexible aid to state and local governments to keep the coming revenue shortfalls facing these governments from translating into spending cuts and austerity that will starve U.S. households of needed help and drag on recovery in coming months.
Josh Bivens is the director of research at the Economic Policy Institute (EPI). His areas of research include macroeconomics, fiscal and monetary policy, the economics of globalization, social insurance, and public investment.
The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI believes every working person deserves a good job with fair pay, affordable health care, and retirement security. www.epi.org
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