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US economy saw record collapse in spring, early summer

The question wasn't whether the GDP report would be dreadful, but rather, how dreadful it would be. Now we know.

The economic report from the first quarter of 2020 -- spanning January through March -- was awful, but incomplete. The economy was still relatively healthy for the early part of that period, and the drop in GDP was largely a reflection of deterioration in March, when the coronavirus crisis started taking a severe toll.

Everyone seemed to realize that the second quarter -- spanning April through June -- would be vastly worse. It was merely a question of how dreadful it would be. Now we know.

The U.S. economy saw the biggest plunge in activity it has ever known in the second quarter, though it wasn’t quite as bad as feared. Gross domestic product from April to June plunged 32.9%, according to the Commerce Department’s first reading on the data released Thursday. Economists surveyed by Dow Jones had been looking for a drop of 34.7%.

To help put figures like these in context, the height of the Great Recession came in the fourth quarter of 2008, when the GDP was -8.4%. At that point, most saw that as evidence of an economy that had been hit by a truck.

In the second quarter of 2020, economic contraction was roughly four times worse.

Since the end of World War II, the most severe downturn was a brief recession in 1958, when there was a three-month span in which Americans saw a GDP drop that reached double digits: -10% in the early part of the year. That set a dramatic benchmark, which has now been easily eclipsed.

In theory, a report like this might jolt policymakers into passing another economic aid package, but recent breakdowns in Republican governance suggest such a breakthrough is highly unlikely.

As for the image above, the chart shows GDP numbers by quarter since the Great Recession began. The red columns show the economy under the Bush and Trump administrations; the blue columns show the economy under the Obama administration.

Update: Just to clarify, the -32.9% reflects contraction at an annualized rate, which is the standard way of reporting the data. In other words, if we saw 12 months of economic activity like what we saw in the second quarter, the economy would shrink by roughly a third.

That said, no one seriously believes we will see 12 months like that, which is why we're seeing some focus this morning on a different figure: -9.5% GDP loss, which reflects the drop-off between the first and second quarters.