In the second quarter of 2020, the U.S. recorded its steepest drop in economic output on record.
As COVID-19 continues to spread around the country leaving economic upheaval in its wake, many economic indicators are trending in undesirable ways. The graphic above is a snapshot of the overall health of the economy at this pivotal moment in time.
The Big Picture
To put this quarter’s 9.5% drop into perspective, it helps to look back in history. Since record keeping began in 1947, quarterly GDP had never exceeded even a 3% drop (non-annualized). Here are just a few of the problems currently plaguing the economy:
Employment: Well over 50 million people are still out of the workforce as businesses shutter permanently and restrictions continue in many parts of the country. New unemployment claims have now exceeded 1 million for 19 consecutive weeks.
Consumer Spending: This makes up more than two-thirds of the U.S. economy, and it sank by the sharpest rate in April—declining by 12.6%. The weekly payments of $600 provided through the CARES Act helped bolster household income, partially offsetting steeper losses. However, the payments expired July 31, and may not be renewed as an initiative.
Monetary Policy: Trillions of dollars have been borrowed to counter the crisis, money supply (M2) has rapidly risen, and central bank balance sheets are shattering records. Despite the injection of money into the system, inflation has dropped to almost zero–well below the Fed’s ideal 2% rate–signalling deflationary pressure on the economy.
Despite the significant challenges facing the American economy, there are some areas that are showing signs of recovery.
S&P 500: The flagship index is the most prominent positive, recording its best quarter in over two decades. Reaching a high-water mark in June, the index shot up over 25% over the second quarter. Federal stimulus packages stoked optimism in the markets, with the Fed at one point purchasing $41 billion in financial assets daily.
Purchasing Managers’ Index (PMI): Widely seen as a leading business indicator, the PMI is also rebounding. Manufacturing output stabilized as production facilities slowly reopened. As a result, an expansionary manufacturing cycle is anticipated to begin.
Big Tech: Business is booming for Big Tech in the latest quarter. Amazon’s earnings doubled compared to last year, while both Facebook and Apple witnessed double-digit earnings jumps. The shift to remote work has figured prominently in this rise.
Bright spots aside, COVID-19 is set to become America’s third most common cause of death (after accidents). With an infection curve that remains stubbornly unflattened, it isn’t just the public that’s at risk–the economy may find itself on life support as well.