First Quarter GDP Plunges 4.8%, Contracting for the First Time Since 2014

Real GDP contracted at a seasonally adjusted annual rate of 4.8% during the first quarter of 2020, according to the Bureau of Economic Analysis’s “advance” estimate, the first contraction in GDP since 2014. Real GDP increased 2.1% in the fourth quarter of 2019.

First quarter GDP decline was, in part, due to governments “stay at home” orders implemented in March in response to the spread of COVID-19. This resulted in rapid changes of demand, as schools and business cancelled operations and moved to remote work. Consumers canceled, restricted, or redirected their spending. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020 because of data limitations.

Real GDP decline in the first quarter reflected negative contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and private inventory investment. These were partly offset by positive contributions from residential fixed investment, net exports, federal, state and local government spending.

Consumption plunged in the first quarter, subtracting 5.26 percentage points (pp) from growth, down from a 1.24 pp contribution during the fourth quarter of 2019. Inventories dragged on growth for the fourth straight quarter, subtracting 0.53 pp from GDP. Residential investment, a positive contributor for the third straight quarter, marginally offset the decline adding a total of 0.74 pp to GDP.

Business investment was negative for the fourth consecutive quarter, subtracting 1.17 pp from GDP growth. Investment in structures and equipment continues to decline and investment in intellectual property products contributed only 0.02 pp.

Government spending slowed, adding 0.13 pp to GDP. The federal government contributed 0.12 pp while state government contributed 0.02 pp.

Read the BEA release.