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Economic Forecasts

First Quarter was Bad, Second Quarter Will Be Worse

Kiplinger’s latest forecast for the GDP growth rate

Business reopenings have started. But expect second quarter GDP to still drop by 30% to 40% at an annualized rate. Even with a pretty good rebound in the second half of the year, expect 2020 GDP to decline 5.8%. Full recovery is likely to take until the end of 2021.

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GDP in the first quarter dropped 5.0% at an annual rate. Consumption spending dropped 6.8%, with the biggest falls in motor vehicle sales and health care spending, as most elective health care stopped because of lockdowns and hospitals reserving space for COVID-19 patients. Of course, there were big declines in purchases of clothing, recreation and restaurant services, too. A positive was a big jump in grocery buying.

Consumers faced a 3.1% drop in wages and salaries in March, and a 2.0% decline in their disposable income. Proprietor income was hit the hardest, with an 8.2% fall. Consumers hedged against the economic uncertainty by saving 13% of their income, a large step up from the 8% rate in February.

Business investment fell 7.9%, as businesses cut back their spending on both equipment and inventories.

Positive factors included a big jump in housing construction, mostly because of warm weather in January and February, and international trade, which added to growth as imports dropped more than exports did. Federal government spending also contributed.

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