WASHINGTON—With revised Commerce Department data showing the U.S. economy shrank 5% in Q1, NAFCU Chief Economist and Vice President of Research Curt Long said the new estimate foreshadows a more serious drop to be reflected in second quarter estimates.
"The fall in consumer spending accounted for essentially all of the decline," said. "More recent data has been promising that retail sales and housing are improving quite quickly, but the second-quarter decline will still be severe.
"Through last week, almost 37 million people have filed for unemployment in Q2 and although many have returned to jobs they were furloughed from, waves of layoffs continue to reverberate as state and local governments feel the COVID-related tax shortfalls," Long added.
Deductions to real GDP came from personal consumption (-4.7%) – with the entirety of the decline coming from the services sector – and investment (-1.8%). Net exports contributed 1.3%, as did government consumption contributed (0.2%).
PCE inflation, the Fed's preferred inflation metric, was flat, remaining at 1.4% during the first quarter. However, core PCE inflation (excluding food and energy) increased to 1.6%, Long said.
‘Even More Severe’
Of note, real disposable income growth dropped to 0.9%, down from 2.1% the previous quarter. Corporate profits and gross domestic income fell 12.3% and 4.4%, respectively.
"NAFCU expects an even more severe contraction in Q2, followed by a sharp increase in Q3, and then a tepid and uneven recovery that hinges on avoiding more virus-related shutdowns – shutdowns that are beginning to appear more likely," Long concluded.