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  • KPB & Co Research


  • US Q2 GDP shrinks 32.9%.
  • Decline in GDP happened at the same time as lockdown measures eased in May and June.
  • Huge government spending and actions taken by the Fed reduced the downside.

GDP Shrinks Due To COVID-19

US Gross Domestic product (GDP) for the 3-month period ending in June-2020 was 32.9% below the total for the same period a year earlier, following a 5% decline in Q1 2020. The decline in US GDP for the June quarter coincided with one month of full lockdown in April, and 2 months of partial ease in lockdown measures in May and June 2020. Nevertheless, by the start of the second quarter of the year most firms would have been well into implementing social distancing measures, and would have required a number of quarters to fully recover. 

The decline in real GDP reflects significant declines in household spending (on health care, clothing and footwear), exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. These declines were offset by the US$1Tn stimulus program implemented by the federal government. According to the Bureau of Economic Analysis (BEA):

The decrease in exports primarily reflected a decrease in goods (led by capital goods). The decrease in private inventory investment primarily reflected a decrease in retail (led by motor vehicle dealers). The decrease in nonresidential fixed investment primarily reflected a decrease in equipment (led by transportation equipment), while the decrease in residential investment primarily reflected a decrease in new single-family housing.


Most economists are expecting to ​see a strong second half of 2020 on account of a gradual return to economic normalcy, continued economic stimulus, and easy money. Though the economy will show some recovery in the second half of the year, the risk of a second wave of infections is high, a risk that will make policy makers reluctant to have a full re-opening of the economy. Already, we have seen where some municipalities in the USA have had to re-impose lockdown measures as the number of confirmed cases surged. In addition, the number persons claiming unemployment benefits stood at 17Mn during the week ending July 18, an increase of 867K from the previous week. The Federal Reserves' economic forecast show that US real GDP growth is expected to come out at about -6.5% for 2020, before recovering partially in 2020.

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