As expected, the economy contracted sharply in the first quarter according to today’s initial estimate from the Bureau of Economic Analysis (BEA). The economy contracted 4.8% in the quarter. This isn’t surprising as the economy was largely shut down for a good part of March. It is the largest decline since the fourth quarter of 2008, during the height of the Great Recession.
The surprising part of the data is health care accounted for almost half of the fall in economic activity. The reduction in elective procedures far outweighed the surge of COVID-19 hospitalizations.
The economy had been growing well prior to the shock caused by COVID-19. If it weren’t for the virus, the economy would likely have continued the course it was on.
Unfortunately, this is probably just the tip of the iceberg. The economy is likely to slow by more than 20% in the second quarter. Having data on the first quarter will help to better inform estimates for what will happen in this quarter. Up until now, such estimates were largely guesswork.
The upside is that growth should rebound sharply in the third quarter once the Great Pause ends.
–Curtis Dubay, Senior Economist, U.S. Chamber of Commerce