The best thing we can say about today’s US gross domestic product (GDP) report for the second quarter is that it’s behind us. GDP contracted at a 32.9% annualized rate during the quarter, the largest decline on record. If we had quarterly GDP stats during the Great Depression, this quarter’s contraction might have eclipsed those declines too. The number covering the “Great Lockdown” was historic. There isn’t much of a silver lining, but the number did come in slightly better than consensus forecasts (34.5% per Bloomberg).

“The worst GDP print in our lifetime wasn’t a surprise, due to consumer spending coming to a sudden halt last quarter,” said LPL Financial Chief Market Strategist Ryan Detrick. “The good news is this number is backward-looking, and we can now look forward, as the rest of 2020 should show major improvement.”

We know from timelier data that economic activity picked up in May and June, setting up a sharp rebound in the current quarter. In fact, consensus estimates for US GDP for the third quarter sit at 18%, according to Bloomberg’s consensus forecast of surveyed economists. One of the sharpest contractions on record may be followed by one of the strongest bounces ever and possibly bring the end of the shortest recession ever recorded. However, the recovery has plateaued in recent weeks, as we discussed.

As our Chart of the Day shows, the sharp decline in consumer spending on services was the primary contributor to the decline, although weakness was widespread across economic sectors. Non-defense spending by the federal government was an important exception, growing at an annualized 40%.

Our base case 2020 GDP forecast is calling for a 3–5% contraction in the United States, slightly better than consensus forecasts. Despite the stronger rebound than many had anticipated during the latter half of the second quarter, we continue to believe that it will take at least a couple of years to get back to pre-pandemic levels of economic activity. In the meantime, policy stimulus will help bridge the gap to—we all hope—a vaccine.

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