By how much did the US economy shrink because of the coronavirus?

US Coronavirus Effect on GDP

Before you read any further, stop and make a guess of how much you think US GDP fell by in the second quarter of 2020 versus the second quarter of 2019:

  1. Less than 10%
  2. Between 10 and 30%
  3. More than 30%

The answer – based on data reported so far – is 9%. On the one hand, it may give some comfort that a country could go through significant shutdowns with output dropping by only 9%. On the other hand, this 9% is an average number over the entire economy and hides the big hit to certain service sectors including healthcare, transport, recreation, food services & accommodation – where output fell by double digit percentages.

The contraction in GDP was dominated by a a fall in services

Just under half of US economic output involves the provision of services (about $8.7 trillion out of $19.5 trillion for the second quarter of 2020). Services reduced by about $1.3 trillion year on year in the second quarter, accounting for over two thirds of the total decrease in GDP of the economy (a $1.8 trillion decrease) for the period year on year.

Breakdown of second quarter GDP according to main categories, adapted from the US Bureau of Economic Analysis

Personal consumption of goods was robust, down just 3% year on year

While clothing and footwear, as well as gasoline and other energy goods fell very significantly (29% and 45%, respectively), these large decreases were significantly offset by an increase in food and beverages for off-premises consumption (up 11% year on year for the quarter).

Breakdown of second quarter GDP within the personal consumption of goods, adapted from the US Bureau of Economic Analysis

Personal consumption of services plummeted, particularly health, transport, recreation and food/accommodation services

The largest sub-category within personal consumption of services is Housing/Utilities which increased slightly year on year for the quarter, partly hiding the severe drop off in other sub-sectors within services. Healthcare, Transportation, Recreation and Food services/accommodations dropped by 18%, 39%, 53% and 39%, respectively for the quarter year on year, showing how severe people and businesses were affected in those sectors.

Breakdown of second quarter GDP within the personal consumption of services, adapted from the US Bureau of Economic Analysis

In summary, the US economy was quite resilient to the COVID-19 pandemic on aggregate, but the effects on specific sectors – notably services – was severe.

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Published by Ronan McGovern

CEO at Sandymount Technologies

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