Troubling economic data released Thursday provided a look at how badly COVID-19 impacted the U.S. economy in the second quarter and how much it continues to affect the U.S. economy.
Real gross domestic product dropped a historic 32.9 percent in the second quarter, which ended June 30, including a nearly 40 percent drop in residential investments, comprised of home sales, home building, and remodeling activity.
“As expected, economic activity collapsed in the second quarter due to the total virus-lockdown in April and only partial re-openings in May,” National Association of Realtors Chief Economist Lawrence Yun said in a statement. “The GDP contraction of 33 percent 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 percent,” Yun added. “Business spending also collapsed by 27 percent.”
There is some good news, however, Yun said: the GDP release is backward-looking and shows the impact that already happened. Yun believes third-quarter data will show a massive increase, with personal savings rates the highest ever. Third-quarter data is expected a few days before the November election.
“There will be an unleashing of spending in the upcoming months as economies open further,” Yun said. “Home sales have already been rising strongly and will continue to do so.”
Joel Kan, the associate vice president of economic and industry forecasting at the Mortgage Bankers Association, also pointed to rebounding housing demand and expects the economy to recover in the second half of the year.
“However, the adverse impacts to the job market and hardships for many households may persist — especially if virus cases continue to rise in several parts of the country,” Kan said. “There are still many workers who have not returned to work, households in need of mortgage or rent forbearance, and an overall sense of uncertainty ahead.”
New jobless claims continued to rise slightly after consistently trending downward since early April. For the week ending July 25, new adjusted initial claims rose 12,000 week over week to 1.43 million. Continuing unemployment was reported at slightly more than 17 million.
Kan expects the U.S. Federal Reserve to keep interest rates flat, near zero percent, due to ongoing circumstances, something the Fed’s open market committee affirmed yesterday.
“The path of the economy will depend significantly on the course of the virus,” the committee said in a statement. “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”
“In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 0.25 percent,” the statement continued. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”