Behind the GDP and Unemployment Numbers

July 31, 2020

Over 72% of the second quarter drop in the U.S. gross domestic product was driven by just four major industry groups, while disposable income jumped a record $1.5 trillion, and a second COVID-19 wave has stalled improvement in the job market.

A record 21.9% decline in health care spending in the second quarter accounted for almost a third (9.5 percentage points) of the 32.9% drop in GDP as Americans postponed nonemergency care in April and May.

Recreational services, food services and accommodations, and other services accounted for another 43% of the drop in GDP (14.3 percentage points).

Business (fixed) investment declined 3.6%, compared to the record 3.9% drop in 2009.

Disposable income jumped $1.5 trillion because of government benefit payments despite employee wages and salaries declining $679.6 billion.  Meanwhile, the savings rate jumped to 25.7%, which should sustain future economic growth, particularly if Congress passes another COVID-19 relief bill.

Monthly wage and salary payments have increased $424 billion from April to June as the economy has reopened.

But over 30 million Americans remain on unemployment benefits, a number that hasn’t changed much since the beginning of May, and the second COVID-19 wave along with corporate “right-sizing” this fall and winter could further delay recovery from the pandemic.

Outlook:  The path of the economy will depend significantly on the course of the virus and how quickly effective therapeutics and vaccines can be developed and deployed.  While there are promising signs, additional government support will be needed for the near future to address government shutdowns.