Fact check: U.S. GDP drop in 2020's second quarter is the worst in modern history
The claim: U.S. GDP quarterly drop worst since the Great Depression
As America’s summer plods along amid a historic pandemic, national protest and civil unrest, the economic fallout from the coronavirus is also taking its toll, leading many to try to contextualize the damage.
“Yesterday US GDP was down 32.9% in the largest quarterly drop since the Great Depression,” a Facebook post shared nearly a thousand times declares.
Accompanying the language was a screenshot of a tweet from President Donald Trump after his visit with famed former professional football player and coach Mike Singletary.
The Facebook post, from July 31 attacked the president, claiming that “1.4 million workers filed for unemployment” and, “More than 150K Americans were dead from COVID-19” while “Trump spent the day tweeting about suspending the election and hanging out with a football player.” Earlier in the day, the president had suggested that the United States should delay its Nov. 3 elections, citing unsubstantiated claims about election security mail-in-voting.
Does the economy claim hold up? Yes. The recent annualized drop in GDP is the worst drop on record, even outstripping the Great Depression in its scale.
More:The COVID economy in 6 charts: Rebounding from recession could prove tougher in months ahead
America’s economic contraction, by the numbers
Statistics released July 30 by the U.S. Bureau of Economic Analysis were the worst since the government began keeping records in 1947.
U.S. gross domestic product shrank by 9.5% between April and June, easily representing the largest quarterly drop on record. The second-quarter annualized rate came out to a 32.9% drop, also the worst performance on record.
The annualized rate is a projection, in this case reflecting that if the American economy experienced a full financial calendar like the last few months, GDP would drop by about 32.9%. While normally the annualized rate is a useful metric for measuring the economy, the BEA is not emphasizing that eye-popping drop in GDP because it's very uncertain whether the U.S. will experience another quarter so devastating.
The recent numbers are the worst in American modern history, according to data from the National Bureau of Economic Research reported by CNBC.
More:With Paycheck Protection Program loan money gone, thousands of restaurants at risk of closing again amid COVID-19
That same week, 1.4 million Americans applied for unemployment for the first time, meaning a total 54.1 million Americans have now sought unemployment benefits for the first time since the start of the pandemic.
The massive contraction in GDP was largely driven by a collapse in consumer spending and private sector investment.
Consumer spending, which accounts for about two-thirds of all U.S. economic activity, fell 34.6% on an annualized rate, though consumption did rise over the past few months compared to the start of the pandemic, according to the Commerce Department. Spending on services dropped 43.5%, while spending on nondurable goods like groceries, toiletries and clothing fell by 15.9%.
More:Dow slides 200 points after US posts record economic drop in second quarter
Global lockdowns also caused exports to fall 64.1%, while Americans imported 53.4% less year-over-year as the coronavirus severely cut domestic demand for foreign goods.
Private-sector investment in the economy fell by 49% percent, indicating that households and businesses are saving money that would otherwise be in circulation.
Federal spending, much of it in the form of stimulus aid, was up significantly from this time last year. Cutbacks in state and local budgets were largely offset by increased public health and social welfare spending.
The coronavirus economy vs. other recessions
The severity of the economic damage brought by the coronavirus pandemic is unprecedented in American history. That said, there are some important differences between the current recession and periods like the Great Depression and the Great Recession.
First, the cause of economic hardship differs from past contractions. American recessions have most often been caused by issues in the financial system. By comparison, the economic damage today is mostly the result of strict nationwide lockdowns as the nation grapples with a public health emergency.
It is also more difficult for economic historians to compare the current economic situation to contractions that predate federal records, especially the further back in time one looks.
NBER statistics did find, however, that the recent fall was worse than the Great Depression, as well as major slowdowns in 1921, 1893 and 1875.
More:Want your small business to survive coronavirus? Get busy, get creative and reopen now
The surge in the unemployment rate caused by the pandemic could give way to sizable drop depending on how quickly jobs return as the economy reopens. The rate, while still in double digits, has declined since hitting a high point early in the pandemic.Other workers who filed for unemployment benefits may have also been furloughed or temporarily let go from their employers, rather than permanently laid off.
There is no doubt, though, that the recent GDP numbers have made some economists reassess their forecasts for the economy.
Worst ever. What's to come?
Private economists' forecasts for second-quarter GDP turned out be slightly more pessimistic than the actual number; a Dow Jones survey found that economists estimated a 34.7% drop in GDP.
Some officials, such as Treasury Secretary Steve Mnuchin, have expressed optimism that the economy can rebound strongly.. The stock market has also remained relatively strong amid the pandemic, as investors flood safe investments with cash in an unusually uncertain market.
Others worry about a longer-lasting blow to the economy from the pandemic as some businesses will permanently. Clothing retailers, for example, have been hit hard by the sudden shift to working from home, with several filing for Chapter 11 bankruptcy protection.
The Federal Reserve has stepped in aggressively to counter the damage, effectively leaving interest rates at zero and injecting vast amounts of cash into the banking system.
More:Amid COVID-19 spikes, reopening rollbacks, Fed could signal near-zero rates for even longer
It is unclear if Congress and the White House can reach a deal to continue the massive economic relief it provided earlier in the pandemic, as stimulus talks have hit a roadblock for now. It's likely that, without intervention, reduced benefits will force unemployed Americans to make tough choices in the months ahead.
More:$1,200 checks? Money for schools? Breaking down what Republicans and Democrats want in the coronavirus stimulus plan
How states handle public health guidelines will be crucial in determining the economic recovery. In July, many states shut back down after coronavirus cases spiked, threatening economic outlooks already severely hampered by the virus itself.
Our ruling: True
Some social media posts describe the current annualized contraction of the economy as the worst since the Great Depression. That is true, but understates the gravity of the situation; it is also the worst contraction in modern American history. We rate this claim TRUE, based on our research.
Our fact-check sources:
- Commerce Department, BEA Gross Domestic Product, 2nd Quarter 2020 Press Release
- Commerce Department, Gross Domestic Product, Second Quarter2020 News Report
- CNBC, Second-quarter GDP plunged by worst-ever 32.9% amid virus-induced shutdown
- USA TODAY, More Americans file for unemployment as extra $600 benefit ends and COVID-19 surges
- Reuters, U.S. consumer spending presses ahead; declining income poses challenge
- KAKE News, Every recession in U.S. history and how the country responded
- CNBC, Unemployment is nearing Great Depression levels. Here’s how the eras are similar — and different
- AEI, Get ready for another fake economic recovery
- POLITICO, Fed warning: U.S. economic outlook at mercy of pandemic
- WSJ, U.S. Economy Contracted at Record Rate Last Quarter; Jobless Claims Rise to 1.43 Million
- Financial Express, COVID-19: US Treasury Secretary Mnuchin hopes economy will bounce back in third quarter this year
- NBER, The American Business Cycle: Continuity and Change
- USA TODAY, Wall Street rallies as Fed keeps rates pinned at record low
- USA TODAY, (Opinion) Our economy is in the COVID valley of death. What will be on the other side, and when?
- USA TODAY, With coronavirus surging, Fed keeps key interest rate near zero, vows more support
- USA TODAY, 'It's a condescension': Pelosi slams White House over deadlock in COVID-19 relief negotiations and $600 unemployment benefits
- USA TODAY, 'Insulin or groceries': How reduced unemployment affects struggling Americans from California to Mississippi
- USA TODAY, Will infections spike, state reopening rollbacks hurt recovery or spur a new recession?
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