It was the worst performance for the American economy since the last quarter of 2008, when America was in the midst of the financial crisis, and ended six years of uninterrupted economic growth.
Much of the decline was driven by a sharp drop in consumer spending, particularly with elective health care procedures.
Economists had prepared for the contraction in the first quarter. But the review shows that the economy was even worse than expected – despite the hum of January and February before closing in March. GDP is expected to contract even more in this quarter.
Thursday’s revisions were mostly dragged down by inventory numbers that were worse than previously thought.
Inventories and inventory investments have been revised downwards, driven by revisions of non-durable goods and petroleum products, according to the BEA.
Good news for the second quarter?
It may not be a bad thing.
“While the first quarter was slightly worse than we thought, the decline in the second quarter may be less because a larger inventory correction had already occurred,” said Michael Pearce, senior US economist at Capital Economics.
That said, the economy is expected to still have a historically terrible quarter between April and June. Expectations are around a 40% drop in annualized GDP, driven by a sharp drop in consumption.
Corporate profits plummet
This second look at the numbers also included corporate profits, showing that profits from current production declined nearly 14% from the previous quarter – a $ 295 billion decline between January and March, compared with an increase of $ 53 billion in the last quarter of 2019 This was the worst decline since the fourth quarter of 2008.
Financial corporations reported a drop in profits of nearly 17%, or $ 67 billion, and non-financial corporations reported a 14% drop in profits, or $ 170 billion.
There were some modestly encouraging signs: final sales to domestic buyers – a measure of demand based on consumer spending and private investment – have been revised. Even though sales have gone down, they haven’t gone down as much as the first thought.
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