Ouch! The almost 33% drop in GDP is the biggest on record, the biggest drop since the government began keeping such records in 1947. But take heart, the number is annualized, so GDP actually fell just 8.225% last quarter, which is slightly better than the 10%+ decline in German GDP in the second quarter.
Still, it’s going to hurt. Personal consumption fell almost 35%, and fixed private investment dropped 49%. On the plus side discretionary income jumped more than 40%, and the savings rate shot up to 25%. Americans have a lot of cash, but with the $600 federal unemployment bonus checks ending today, that might change quickly.
As Fed Chair Powell said in his remarks on Wednesday, it’s all about the virus. If the U.S. gets a second wave, then GDP could remain low, which would drive up unemployment and cause massive upheavals in the credit market as workers without cash fail to pay their rent and mortgages, as well as credit card and auto loan payments.