The US economy contracted an annualized 4.8% in the first quarter, worse than the 4% economists expected.
The numbers, released on Wednesday morning, came on a considerable delay. For three agonizing minutes past the expected release time, market participants stared blankly at their monitors.
This effectively marks the end of the longest expansion in American history. With the second quarter all but guaranteed to bring the single worst quarterly GDP print in data going back some seven decades, the first quarter numbers released on Wednesday represent the beginning of the recession.
As expected, the underlying numbers are disconcerting.
Personal consumption was already decelerating headed into the pandemic. It shrank 7.6% in the first quarter. While hardly surprising under the circumstances, it’s nevertheless something of a death blow for an economy that lives and dies by consumer spending.
At this juncture, debates about whether the consumer can continue to shoulder the burden in an economy where business investment is weak (to put it euphemistically) have been rendered largely irrelevant. The game has changed. Now, the question is whether (and to what extent) the coronavirus experience has forever altered consumer psychology.
You might recall that Q4 2019 marked the first time since 2009 that nonresidential fixed investment fell in three consecutive periods. Needless to say, it dropped again in Q1. The decline for the first quarter was 8.6%.
Banks expect capex to plunge in 2020, as corporate management teams rein in spending and hoard cash amid the downturn.
Finally, it’s worth noting that sales to domestic purchasers (ex.-government) dropped 6.6% in Q1.
In the fourth quarter, the gain was a meager 1.3%, the least in four years. This is another instance where the economy was on somewhat shaky ground coming into the worst demand shock since the Great Depression.
With the deepest downturn in modern history now assured, economists have turned projecting the shape of the assumed recovery into something of a parlor game – will it look like a “V”, a “U”, an “L”, a “W”? Inquiring minds want (and need) to know!
For now, the consensus is “V” – it always is.
Earlier this week, while speaking to reporters in the Rose Garden, Donald Trump assured Americans that “the third and fourth quarter in particular are going to be spectacular”.
Next year, Trump told the media on Monday, will be “unbelievable”.
Maybe. But for now, all we can do is mourn the demise of the longest expansion in history.
It appeared as though nothing could stop the world’s largest economy from muddling along with the Fed at its back and consumers still willing to open their wallets (or take out the plastic).
Mother Nature had other plans.