Instant Reaction: GDP, July 30, 2020

As expected, economic activity collapsed in the second quarter due to the total virus-lockdown in April and only partial re-openings in May. The GDP contraction of 33% on an annualized basis is the steepest ever experienced in the U.S. Even with the stimulus and enhanced unemployment benefits, consumer spending collapsed by a massive 35%. Business spending also collapsed by 27%. Even residential investments – comprising of home sales, home building, and remodeling activity – dropped by nearly 40%.

The good news is that this data is backward-looking. Third-quarter data will show a massive increase. Personal savings rates are the highest ever, with massive deposits at banks. There will be an unleashing of spending in the upcoming months as economies open further. Home sales have already been rising strongly and will continue to do so. GDP growth in the third quarter could be as high as 30%. Note: this data will come out three days before the November election.