8 ms·

U.S. Economy Contracted at Record Rate Last Quarter

132 points by nickles 6y ago

mytailorisrich 6y ago
Monthly and quaterly figures are bound to show the largest drop. For annual figures, a first approximation is that a month is worth 1/12th of the annual output so I would expect a 8.3% drop for every month that the economy is completely stopped. 34% contraction for a quarter means that the economy essentially stopped for a whole month, and would lead to a 8% contraction for 2020, everything else being equal. But we're not through yet...
- coldpie 6y ago
  > I would expect 8.3% drop for every month that the economy is completely stopped Yeah. Everyone knew this was going to be bad, which is why the experts were saying we need to get it under control quickly and figure out how to safely operate while the pandemic is in effect. But 2016 happened, so instead we get months and months of lockdown and the accompanying economic devastation.
  - dageshi 6y ago
    History isn't going to be kind to Trump.
    - gtfoutttt 6y ago
      The present isn't too kind to him either.
  - atemerev 6y ago
    The "experts" are saying many different things. Currently, the new situation is being analyzed, but it seems that even pervasive non-pharmaceutical interventions (masks obligatory in all closed spaces, ban on public events, etc) are still not enough to keep Rt below 1.0 and "get it under control" (see the second wave effects in Europe). Lockdowns seemed to work, but economically unsustainable. As of now, there is no clear answer about how to proceed. And that's before the epic blame game even started. Boy, that would be interesting to watch.
    - rorykoehler 6y ago
      Masks would work if everybody wore them
      - tmountain 6y ago
        And, wore them properly.
      - atemerev 6y ago
        I was in southern France recently. Nearly 100% of people there are wearing masks inside shops, public transport, and other confined spaces. And still, even there we now see the clear increase in daily cases (it is much slower than before, but still happening)
      - DanBC 6y ago
        There's no (edit to add: good} evidence for that.
      - glofish 6y ago
        the problem is that masks have a minor effect at best thus in no way represent the solution so many seek
        atemerev 6y ago
        Not “a minor effect”, they seem to improve Rt more or less significantly (according to preliminary studies). But they are probably not enough on their own.
      - Gwypaas 6y ago
        This feels like such an American solution. If everyone just does this one magic thing then life will continue on as usual. First it was hydroxychloroquine, then a lock-down and now masks. Masks worn correctly limits spread, but it's just a piece in the puzzle of tools available, and almost certainly not the most significant one, that is not meeting people. Look at Finland, Norway and Denmark, they all successfully controlled it so far without mask usage. Catching up with research they now encourage it in indoor situations where you can't distance, even though the recommendation still is to not even be there if possible. Leaving it as a tool available if current measures aren't enough.
  - makomk 6y ago
    The trouble is, there's no good reason to believe that it's even possible to get Covid-19 under control. The handful of success stories that everyone pointed to kept on turning out not to be: Singapore, arguably South Korea, Australia, Hong Kong, Vietnam... and the press just kept on moving on to the next one without ever changing the narrative. We've never contained a respiratory disease this contagious and sneaky before; historically, they've just run through the population and efforts have been focused on minimizing the damage. Unfortunately 2016 happened and now it's an election year again, so we need the idea that all this economic damage and death and lockdowns could've been avoided if only Trump wasn't in charge in order to ensure the right candidate wins later this year.
- take_a_breath 6y ago
  == For annual figures, a first approximation is that a month is worth 1/12th of the annual output so I would expect 8.3% drop for every month that the economy is completely stopped.== It’s not that easy as the US economy was never “completely stopped”. Public services did not stop, grocery stores did not stop, etc. Even today the states have various levels of openness and movement.
  - mytailorisrich 6y ago
    > It’s not that easy as the US economy was never “completely stopped” Yes, 8.3% is obviously the upper bound and in practice it will always be less per month since the economy will never completely stop. The figure is to provide a ballpark estimate of what to expect and also to estimate how much the economy was impacted.
chollida1 6y ago
This is getting into scary territory given that the US also spent 3.5 trillion to prop up the economy. Some more "fun facts": - this is the biggest drop on record for GDP: 32.9%. That far surpasses the previous historical contraction of 10% in 1958. - 19th reporting period where initial jobless claims came in above 1,000,000 that is stunning - Personal consumption: -34.6% - Government spending: +2.7% - 2Q GDP Price Index Falls at A 1.8% Annual Rate - Domestic investment: -49% - 2Q Core PCE Price Index Falls at A 1.1% Annual Rate - 17 million people collecting money from teh government - 2Q Personal Consumption Falls at 34.6% Annual Rate and the kicker When you compare the last three years of Obama’s Presidency vs. Trump’s first three years, Trump’s deficits will be almost $1 trillion greater at $2.47 trillion to $1.51 trillion for Obama. It doesn’t look like Trump’s tax cuts will pay for themselves. The US under Trump will add about the same amount to the nation debt in 4 years as Obama did in 8 and Obama inherited the "great recession" https://www.whitehouse.gov/wp-content/uploads/2020/02/budget_fy21.pdf https://www.whitehouse.gov/wp-content/uploads/2020/02/budget... For those of you who like to dive into the numbers https://www.bea.gov/sites/default/files/2020-07/tech2q20_adv.pdf https://www.bea.gov/sites/default/files/2020-07/tech2q20_adv... From Bloomberg: - Some categories actually added to GDP: consumer spending on cars, recreational goods, housing and utilities (as people worked from home and ran air conditioners longer?), and financial services and insurance. - Other categories in positive territory: information processing equipment at companies (all other categories detracted from GDP), net exports, and government spending. - China has only bought about 23% of its promised purchases for the year from the phase 1 trade deal so we probably can't look to China to buy the US out of its depression
- seneca 6y ago
  > When you compare the last three years of Obama’s Presidency vs. Trump’s first three years If you remove the pointless politicking, this is a very informative comment. Thanks for putting all that data together. It seems strange to lay out the completely unprecedented context, then proceed to ignore it in order to make a political claim though.
  - jefftime 6y ago
    What politicking are you referring to?
Havoc 6y ago
Stockmarket fine though. What a joke.
- londons_explore 6y ago
  The stockmarket is denominated in US dollars... Investors see two possible futures: 1. Economy is fine, their stocks end up growing in $$$ terms. Hence high price. 2. Economy tanks, US prints new dollars to pay off loans, US dollar loses lots of its value, but because the company stocks are denominated in dollars, the stocks are still worth a lot of dollars.
  - tmountain 6y ago
    The euro is already pulling ahead of the dollar, but I believe the global demand for oil (bought and sold in dollars) will prevent a Venezuelan type inflation situation from occurring. The US participates in the world economy on a level that makes it hard to imagine greenbacks devaluing against other foreign currencies in a highly disproportionate way. That said, I could be totally wrong.
    - JumpCrisscross 6y ago
      > global demand for oil (bought and sold in dollars) Oil trading is a negligible component of dollar demand [1]. The petrodollar hypothesis is a debunked myth. [1] https://en.wikipedia.org/wiki/Petrodollar_recycling https://en.wikipedia.org/wiki/Petrodollar_recycling
      - tmountain 6y ago
        Then what is the basis for the dollar being the world's reserve currency? (honest question, not arguing)
        JumpCrisscross 6y ago
        > what is the basis for the dollar being the world's reserve currency? The origin is Bretton Woods [1]. This was the international system set at the end of World War II, when the U.S. was a global nuclear hegemon and the largest developed country with a homeland unmarred by conflict. It retains the role due to a confluence of the America's relative political stability (as in no revolutions), commitment to open financial markets, deep and complex financial markets and, most critically, massive consumer base. American consumers spend dollars globally. That leaves U.S. dollar scattered in various merchants' accounts. They can swap those dollars to their local currency, which incurs a fee. Or they can hold it to spend later. If they're holding it, they--or their bank--will invest it to produce yield. That creates demand for dollar-denominated investments, which, in turn, makes it easier to raise capital in dollars. That confluence underwrites a financial system that offers more products, for cheaper, and in more variety, in U.S. dollars than in any other currency. Plainly put, America's post-war position put the U.S. dollar in the lead just as computing advances increased the global financial system's connectivity and complexity. It's a story of network effects. [1] https://google.com/search?hl=en&q=breton%20woods https://google.com/search?hl=en&q=breton%20woods
LatteLazy 6y ago
These numbers are not useful. We need to know if the economy will spring back when we reopen, not if it closed when we closed it. Picking this number because it's the closest thing we have to a useful number doesn't make it useful.
- chasd00 6y ago
  Not sure why the parent was modded down, they're exactly right. This is not normal times, all bets are off. Current economic numbers have no relevance to the past nor the future. edit: It will be interesting if Biden is elected and then a vaccine comes out, the economy rebounds, will he take credit? I would expect him to as would any other politician would but, man, Trump's twitter rage will be epic.
  - LatteLazy 6y ago
    I don't want to push the metaphor too far, but... Every night most of us go to sleep between 11pm and 6am. National economic output drops around 90%. Massive disaster, recession, depression level issues. And no one bats an eye lid. Because there is a good reason for this and everyone will wake up in the next 7 hours and go back to work. This is that but for 7 months instead of 7 hours. The question everyone should care about is "Will we wake up, when and how many companies will have died in their sleep?" Not "How much work are companies doing while they sleep?". Those two numbers are barely related IMHO. In fact, the safer we make it to sleep, the less activity we will see now BUT the more we will see in a few months, years etc.
    - makomk 6y ago
      The length of the interval matters. Everyone's heart pauses for a second or so tens of thousands of times a day, but if your heart pauses for an hour you're dead. The economy is a lot like your blood circulation - it relies on a continuous flow of money in order for businesses to keep on running and providing people with stuff, and the longer it's shut down for the worse we can probably expect the damage to be.
sp332 6y ago
Please add "Annualized Rate" to the title.
- ethbro 6y ago
  @dang Seems like an accurate and fair update
  - detaro 6y ago
    just mentioning his name doesn't do anything. The mod e-mail address is in the page footer if you want to reach him.
    - FabHK 6y ago
      Thanks, didn't know that - they often respond so promptly that I actually thought the invocation of the name or "mods" triggered some sort of notification..
      - detaro 6y ago
        Yeah, I wouldn't know either if I didn't remember him saying that there isn't actually a running keyword search for it. It'd be interesting to know what percentage of all HN comments he reads...
  - cm2012 6y ago
    It is 6am pt..
- koheripbal 6y ago
  Since there's no number in the title (as of 10:30am ET), adding the word "annualized" means nothing.
  - sp332 6y ago
    That works too.
civilized 6y ago
It didn't. It contracted by 9.5% in Q2, which, if repeated for four consecutive quarters, would become 32.9%. Annualized figures might make sense in ordinary times, but these are not ordinary times.
- kgwgk 6y ago
  [this is terribly wrong: “It did contract by 32.9% in the second quarter (not in the four quarters ending in June 2020)”] Edit: I assumed it was compared to the second quarter 2019, not sequentially to the first quarter 2020, I didn’t stop to think that 33% was just too much. 9% is bad enough: from $21.34 trillion to $19.41 trillion (Q2 2019 to Q2 2020).
  - rayiner 6y ago
    No. “The U.S. economy contracted at a record 32.9% annual rate last quarter.”
  - MrPowers 6y ago
    The title of the article says "U.S. Economy Contracts at Record 32.9% Annual Rate". A HN mod should change the title here on this site cause it's misleading.
  - FabHK 6y ago
    No. Goes to show how misleading the headline is (particularly the HN headline - was there no space for the important clarification "annual rate"?) @Dang? add "annualised" or "annual rate"?
    - nickles 6y ago
      The article headline changed since this was posted. I've updated it to reflect the new title.
  - function_seven 6y ago
    No it didn’t. Here’s NYT’s headline: U.S. economic output fell 9.5 percent in the second quarter, the biggest drop on record. That translates to a 32.9 percent annual rate of decline.
cletus 6y ago
So what I find interesting--even scary--is the disconnect between the economy and the stock market. Back in April near the bottom the advice I gave was that this was pretty serious and it's going to knock the economy off its feet so don't treat this like a short-term buying opportunity. Here we are a few months later and the market has gone gangbusters. This is probably a consequence of zero-interest rates as there's really nowhere else for money to go. You have amateurs jumping into the market based largely on the market can only go up and you can't lose. Once the market is disconnected from the economy like this it's just a question of when not if you have a reversion to mean and the market will typically get oversold when that happens. But how long will that take? I honestly have no idea. It could be months. Hell, it could even be years. But a drop in GDP this large is shocking, probably even more shocking than people suspected. And before this I think a lot of people expected things would just get back to normal at some point. But a certain number of businesses and jobs are simply gone. That'll affect demand and probably take years to recover. I've got a bad feeling about this.
amiga_500 6y ago
Give me just a little more time, and our love will surely grow. Election delay! https://www.bbc.co.uk/news/amp/world-us-canada-53597975 https://www.bbc.co.uk/news/amp/world-us-canada-53597975
JanSt 6y ago
Was the US lockdown so hard? I thought Europe locked down much more and the contractions there were in the 6-13% range.
- kingkawn 6y ago
  We have millions more cases than them
  - dazc 6y ago
    You also test a lot more and your death rate is below most of Europe and especially the UK. Much of the media likes to suggest the opposite though - go figure?
    - gnusty_gnurc 6y ago
      It's an election year with a despised president.
    - antientropic 6y ago
      The death rate in the US is now substantially higher than in Europe. The EU+UK have 355 deaths per million [1], while the US is at 465 [2]. Of course, those are the official figures - it's possible that the excess mortality shows a different picture. [1] https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea [2] https://www.worldometers.info/coronavirus/#countries https://www.worldometers.info/coronavirus/#countries
      - dazc 6y ago
        'The death rate in the US is now substantially higher than in Europe.' I used the term most of Europe and especially the UK. Let's, instead, say 'parts of Europe' and 'the UK' and these figures paint a different story.
      - simonh 6y ago
        Also most of Europe locked down hard enough that the death rate now is quite low, fairly steady at a few hundred deaths per day. https://www.statista.com/statistics/1102288/coronavirus-deaths-development-europe/ https://www.statista.com/statistics/1102288/coronavirus-deat... Meanwhile the deaths per day in the US are still on a strong upward trend with well over 1000 deaths per day and climbing. https://shorturl.at/eprER https://shorturl.at/eprER
ZinniaZirconium 6y ago
Yup. The chroma virus did it. The big bad chroma virus will turn you a different color. Anyway I'm liking the lockdown because I don't want to go anywhere and I have plenty of opportunity to write code that nobody will ever use. Zero users and loving it! The day job has been slow though. I’m not quite working full-time anymore since there's simply less work to do right now. $CUSTOMERS are slightly less interested in $COMPANY $PRODUCTS when they're more concerned about essentials like where they can buy food.
aazaa 6y ago
> Congress has approved trillions of dollars in stimulus to help U.S. households and businesses get through the pandemic, and another package is now being negotiated on Capitol Hill. One key component—an extra $600 in weekly jobless benefits—is due to expire at the end of July, but lawmakers are still discussing whether and how to extend the aid. This is the part that isn't getting enough attention. That "stimulus" came in the form of treasury bonds. Those bonds need to be bought by... someone. Foreign central banks stopped net buying US treasuries a few years ago. At the same time, gold holdings by central banks have climbed. The world outside the US is thumbing its nose at US federal debt as a reserve asset. Without deep-pocket buyers, the interest rate on US debt will rise, and continue rising until a suitably-high interest rate can be found to justify the risk of loss. So the Fed has stepped into the void and bought the treasuries in unprecedented quantities: https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL It turns out even this isn't enough to soak up all the debt being issued. Regulations have been relaxed so that banks can claim treasury holdings as reserves. The Fed has deputized banks as holders of US debt. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200515a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre... This sets up a situation in which US treasury yields simply can't be allowed to spike because if that happened: 1. banks would suffer capital losses 2. the US government would become unable to sustain interest payments on new debt. That means forced cuts to entitlements and even the military. Clearly, this would spell disaster. So it's not going to happen. The Fed will keep buying and buying and buying. If need be, regulations will be changed to allow the Fed to buy things it has never been able to buy before. Like US stocks. The party can never, ever end. The balance sheet expansion will continue until some factor emerges that causes more pain as the balance sheet expands. I'm not sure what that factor could be, but it would come as a very big shock. For clues regarding the limit of Fed money printing, look to the enormous asset bubble that's developing in US stocks. The more the balance sheet expands, the bigger this bubble gets. And for the foreseeable future, the Fed can't stop printing. What breaks first?
- mrep 6y ago
  Japans central bank has 3 times the asset sheet to gdp ratio that we do. I think we got a while before anything breaks.
partingshots 6y ago
Not bad, the market was pricing in expectations of a 34.7% contraction.
JumpCrisscross 6y ago
GDP is a flow statistic, though we often discuss it as a stock. (Cash in the bank is a stock statistic. Cash inflows is a flow. Amount of stuff versus delta.) It's difficult to compare this quarter to those in 1918, given the dramatic differences in the composition of the economies and statistical methods. But a ~10% reduction in flows doesn't strike me as that bad to the country's long-term potential. The assets are mostly still there. And nobody is forgetting how to do their job in 3 to 6 months, though productivity in some sectors will take a hit from the changes.
binarymax 6y ago
Has anyone in currency exchange noticed signals of inflation? I track GBP=>USD and even in a post-Brexit COVID economy the rate changed from 1.23 in April to a peak of 1.30 on Tuesday. This really looks like inflation to me, but I'm not an expert.

132 points by nickles 6y ago

Monthly and quaterly figures are bound to show the largest drop. For annual figures, a first approximation is that a month is worth 1/12th of the annual output so I would expect a 8.3% drop for every month that the economy is completely stopped. 34% contraction for a quarter means that the economy essentially stopped for a whole month, and would lead to a 8% contraction for 2020, everything else being equal. But we're not through yet...

coldpie 6y ago
> I would expect 8.3% drop for every month that the economy is completely stopped Yeah. Everyone knew this was going to be bad, which is why the experts were saying we need to get it under control quickly and figure out how to safely operate while the pandemic is in effect. But 2016 happened, so instead we get months and months of lockdown and the accompanying economic devastation.
- dageshi 6y ago
  History isn't going to be kind to Trump.
  - gtfoutttt 6y ago
    The present isn't too kind to him either.
- atemerev 6y ago
  The "experts" are saying many different things. Currently, the new situation is being analyzed, but it seems that even pervasive non-pharmaceutical interventions (masks obligatory in all closed spaces, ban on public events, etc) are still not enough to keep Rt below 1.0 and "get it under control" (see the second wave effects in Europe). Lockdowns seemed to work, but economically unsustainable. As of now, there is no clear answer about how to proceed. And that's before the epic blame game even started. Boy, that would be interesting to watch.
  - rorykoehler 6y ago
    Masks would work if everybody wore them
    - tmountain 6y ago
      And, wore them properly.
    - atemerev 6y ago
      I was in southern France recently. Nearly 100% of people there are wearing masks inside shops, public transport, and other confined spaces. And still, even there we now see the clear increase in daily cases (it is much slower than before, but still happening)
    - DanBC 6y ago
      There's no (edit to add: good} evidence for that.
    - glofish 6y ago
      the problem is that masks have a minor effect at best thus in no way represent the solution so many seek
      - atemerev 6y ago
        Not “a minor effect”, they seem to improve Rt more or less significantly (according to preliminary studies). But they are probably not enough on their own.
    - Gwypaas 6y ago
      This feels like such an American solution. If everyone just does this one magic thing then life will continue on as usual. First it was hydroxychloroquine, then a lock-down and now masks. Masks worn correctly limits spread, but it's just a piece in the puzzle of tools available, and almost certainly not the most significant one, that is not meeting people. Look at Finland, Norway and Denmark, they all successfully controlled it so far without mask usage. Catching up with research they now encourage it in indoor situations where you can't distance, even though the recommendation still is to not even be there if possible. Leaving it as a tool available if current measures aren't enough.
- makomk 6y ago
  The trouble is, there's no good reason to believe that it's even possible to get Covid-19 under control. The handful of success stories that everyone pointed to kept on turning out not to be: Singapore, arguably South Korea, Australia, Hong Kong, Vietnam... and the press just kept on moving on to the next one without ever changing the narrative. We've never contained a respiratory disease this contagious and sneaky before; historically, they've just run through the population and efforts have been focused on minimizing the damage. Unfortunately 2016 happened and now it's an election year again, so we need the idea that all this economic damage and death and lockdowns could've been avoided if only Trump wasn't in charge in order to ensure the right candidate wins later this year.
take_a_breath 6y ago
== For annual figures, a first approximation is that a month is worth 1/12th of the annual output so I would expect 8.3% drop for every month that the economy is completely stopped.== It’s not that easy as the US economy was never “completely stopped”. Public services did not stop, grocery stores did not stop, etc. Even today the states have various levels of openness and movement.
- mytailorisrich 6y ago
  > It’s not that easy as the US economy was never “completely stopped” Yes, 8.3% is obviously the upper bound and in practice it will always be less per month since the economy will never completely stop. The figure is to provide a ballpark estimate of what to expect and also to estimate how much the economy was impacted.

chollida1 6y ago

This is getting into scary territory given that the US also spent 3.5 trillion to prop up the economy. Some more "fun facts": - this is the biggest drop on record for GDP: 32.9%. That far surpasses the previous historical contraction of 10% in 1958. - 19th reporting period where initial jobless claims came in above 1,000,000 that is stunning - Personal consumption: -34.6% - Government spending: +2.7% - 2Q GDP Price Index Falls at A 1.8% Annual Rate - Domestic investment: -49% - 2Q Core PCE Price Index Falls at A 1.1% Annual Rate - 17 million people collecting money from teh government - 2Q Personal Consumption Falls at 34.6% Annual Rate and the kicker When you compare the last three years of Obama’s Presidency vs. Trump’s first three years, Trump’s deficits will be almost $1 trillion greater at $2.47 trillion to $1.51 trillion for Obama. It doesn’t look like Trump’s tax cuts will pay for themselves. The US under Trump will add about the same amount to the nation debt in 4 years as Obama did in 8 and Obama inherited the "great recession" https://www.whitehouse.gov/wp-content/uploads/2020/02/budget_fy21.pdf https://www.whitehouse.gov/wp-content/uploads/2020/02/budget... For those of you who like to dive into the numbers https://www.bea.gov/sites/default/files/2020-07/tech2q20_adv.pdf https://www.bea.gov/sites/default/files/2020-07/tech2q20_adv... From Bloomberg: - Some categories actually added to GDP: consumer spending on cars, recreational goods, housing and utilities (as people worked from home and ran air conditioners longer?), and financial services and insurance. - Other categories in positive territory: information processing equipment at companies (all other categories detracted from GDP), net exports, and government spending. - China has only bought about 23% of its promised purchases for the year from the phase 1 trade deal so we probably can't look to China to buy the US out of its depression

seneca 6y ago
> When you compare the last three years of Obama’s Presidency vs. Trump’s first three years If you remove the pointless politicking, this is a very informative comment. Thanks for putting all that data together. It seems strange to lay out the completely unprecedented context, then proceed to ignore it in order to make a political claim though.
- jefftime 6y ago
  What politicking are you referring to?

Havoc 6y ago

Stockmarket fine though. What a joke.

londons_explore 6y ago
The stockmarket is denominated in US dollars... Investors see two possible futures: 1. Economy is fine, their stocks end up growing in $$$ terms. Hence high price. 2. Economy tanks, US prints new dollars to pay off loans, US dollar loses lots of its value, but because the company stocks are denominated in dollars, the stocks are still worth a lot of dollars.
- tmountain 6y ago
  The euro is already pulling ahead of the dollar, but I believe the global demand for oil (bought and sold in dollars) will prevent a Venezuelan type inflation situation from occurring. The US participates in the world economy on a level that makes it hard to imagine greenbacks devaluing against other foreign currencies in a highly disproportionate way. That said, I could be totally wrong.
  - JumpCrisscross 6y ago
    > global demand for oil (bought and sold in dollars) Oil trading is a negligible component of dollar demand [1]. The petrodollar hypothesis is a debunked myth. [1] https://en.wikipedia.org/wiki/Petrodollar_recycling https://en.wikipedia.org/wiki/Petrodollar_recycling
    - tmountain 6y ago
      Then what is the basis for the dollar being the world's reserve currency? (honest question, not arguing)
      - JumpCrisscross 6y ago
        > what is the basis for the dollar being the world's reserve currency? The origin is Bretton Woods [1]. This was the international system set at the end of World War II, when the U.S. was a global nuclear hegemon and the largest developed country with a homeland unmarred by conflict. It retains the role due to a confluence of the America's relative political stability (as in no revolutions), commitment to open financial markets, deep and complex financial markets and, most critically, massive consumer base. American consumers spend dollars globally. That leaves U.S. dollar scattered in various merchants' accounts. They can swap those dollars to their local currency, which incurs a fee. Or they can hold it to spend later. If they're holding it, they--or their bank--will invest it to produce yield. That creates demand for dollar-denominated investments, which, in turn, makes it easier to raise capital in dollars. That confluence underwrites a financial system that offers more products, for cheaper, and in more variety, in U.S. dollars than in any other currency. Plainly put, America's post-war position put the U.S. dollar in the lead just as computing advances increased the global financial system's connectivity and complexity. It's a story of network effects. [1] https://google.com/search?hl=en&q=breton%20woods https://google.com/search?hl=en&q=breton%20woods

LatteLazy 6y ago

These numbers are not useful. We need to know if the economy will spring back when we reopen, not if it closed when we closed it. Picking this number because it's the closest thing we have to a useful number doesn't make it useful.

chasd00 6y ago
Not sure why the parent was modded down, they're exactly right. This is not normal times, all bets are off. Current economic numbers have no relevance to the past nor the future. edit: It will be interesting if Biden is elected and then a vaccine comes out, the economy rebounds, will he take credit? I would expect him to as would any other politician would but, man, Trump's twitter rage will be epic.
- LatteLazy 6y ago
  I don't want to push the metaphor too far, but... Every night most of us go to sleep between 11pm and 6am. National economic output drops around 90%. Massive disaster, recession, depression level issues. And no one bats an eye lid. Because there is a good reason for this and everyone will wake up in the next 7 hours and go back to work. This is that but for 7 months instead of 7 hours. The question everyone should care about is "Will we wake up, when and how many companies will have died in their sleep?" Not "How much work are companies doing while they sleep?". Those two numbers are barely related IMHO. In fact, the safer we make it to sleep, the less activity we will see now BUT the more we will see in a few months, years etc.
  - makomk 6y ago
    The length of the interval matters. Everyone's heart pauses for a second or so tens of thousands of times a day, but if your heart pauses for an hour you're dead. The economy is a lot like your blood circulation - it relies on a continuous flow of money in order for businesses to keep on running and providing people with stuff, and the longer it's shut down for the worse we can probably expect the damage to be.

sp332 6y ago

Please add "Annualized Rate" to the title.

ethbro 6y ago
@dang Seems like an accurate and fair update
- detaro 6y ago
  just mentioning his name doesn't do anything. The mod e-mail address is in the page footer if you want to reach him.
  - FabHK 6y ago
    Thanks, didn't know that - they often respond so promptly that I actually thought the invocation of the name or "mods" triggered some sort of notification..
    - detaro 6y ago
      Yeah, I wouldn't know either if I didn't remember him saying that there isn't actually a running keyword search for it. It'd be interesting to know what percentage of all HN comments he reads...
- cm2012 6y ago
  It is 6am pt..
koheripbal 6y ago
Since there's no number in the title (as of 10:30am ET), adding the word "annualized" means nothing.
- sp332 6y ago
  That works too.

civilized 6y ago

It didn't. It contracted by 9.5% in Q2, which, if repeated for four consecutive quarters, would become 32.9%. Annualized figures might make sense in ordinary times, but these are not ordinary times.

kgwgk 6y ago
[this is terribly wrong: “It did contract by 32.9% in the second quarter (not in the four quarters ending in June 2020)”] Edit: I assumed it was compared to the second quarter 2019, not sequentially to the first quarter 2020, I didn’t stop to think that 33% was just too much. 9% is bad enough: from $21.34 trillion to $19.41 trillion (Q2 2019 to Q2 2020).
- rayiner 6y ago
  No. “The U.S. economy contracted at a record 32.9% annual rate last quarter.”
- MrPowers 6y ago
  The title of the article says "U.S. Economy Contracts at Record 32.9% Annual Rate". A HN mod should change the title here on this site cause it's misleading.
- FabHK 6y ago
  No. Goes to show how misleading the headline is (particularly the HN headline - was there no space for the important clarification "annual rate"?) @Dang? add "annualised" or "annual rate"?
  - nickles 6y ago
    The article headline changed since this was posted. I've updated it to reflect the new title.
- function_seven 6y ago
  No it didn’t. Here’s NYT’s headline: U.S. economic output fell 9.5 percent in the second quarter, the biggest drop on record. That translates to a 32.9 percent annual rate of decline.

cletus 6y ago

So what I find interesting--even scary--is the disconnect between the economy and the stock market. Back in April near the bottom the advice I gave was that this was pretty serious and it's going to knock the economy off its feet so don't treat this like a short-term buying opportunity. Here we are a few months later and the market has gone gangbusters. This is probably a consequence of zero-interest rates as there's really nowhere else for money to go. You have amateurs jumping into the market based largely on the market can only go up and you can't lose. Once the market is disconnected from the economy like this it's just a question of when not if you have a reversion to mean and the market will typically get oversold when that happens. But how long will that take? I honestly have no idea. It could be months. Hell, it could even be years. But a drop in GDP this large is shocking, probably even more shocking than people suspected. And before this I think a lot of people expected things would just get back to normal at some point. But a certain number of businesses and jobs are simply gone. That'll affect demand and probably take years to recover. I've got a bad feeling about this.

amiga_500 6y ago

Give me just a little more time, and our love will surely grow. Election delay! https://www.bbc.co.uk/news/amp/world-us-canada-53597975 https://www.bbc.co.uk/news/amp/world-us-canada-53597975

JanSt 6y ago

Was the US lockdown so hard? I thought Europe locked down much more and the contractions there were in the 6-13% range.

kingkawn 6y ago
We have millions more cases than them
- dazc 6y ago
  You also test a lot more and your death rate is below most of Europe and especially the UK. Much of the media likes to suggest the opposite though - go figure?
  - gnusty_gnurc 6y ago
    It's an election year with a despised president.
  - antientropic 6y ago
    The death rate in the US is now substantially higher than in Europe. The EU+UK have 355 deaths per million [1], while the US is at 465 [2]. Of course, those are the official figures - it's possible that the excess mortality shows a different picture. [1] https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea [2] https://www.worldometers.info/coronavirus/#countries https://www.worldometers.info/coronavirus/#countries
    - dazc 6y ago
      'The death rate in the US is now substantially higher than in Europe.' I used the term most of Europe and especially the UK. Let's, instead, say 'parts of Europe' and 'the UK' and these figures paint a different story.
    - simonh 6y ago
      Also most of Europe locked down hard enough that the death rate now is quite low, fairly steady at a few hundred deaths per day. https://www.statista.com/statistics/1102288/coronavirus-deaths-development-europe/ https://www.statista.com/statistics/1102288/coronavirus-deat... Meanwhile the deaths per day in the US are still on a strong upward trend with well over 1000 deaths per day and climbing. https://shorturl.at/eprER https://shorturl.at/eprER

ZinniaZirconium 6y ago

Yup. The chroma virus did it. The big bad chroma virus will turn you a different color. Anyway I'm liking the lockdown because I don't want to go anywhere and I have plenty of opportunity to write code that nobody will ever use. Zero users and loving it! The day job has been slow though. I’m not quite working full-time anymore since there's simply less work to do right now. $CUSTOMERS are slightly less interested in $COMPANY $PRODUCTS when they're more concerned about essentials like where they can buy food.

aazaa 6y ago

> Congress has approved trillions of dollars in stimulus to help U.S. households and businesses get through the pandemic, and another package is now being negotiated on Capitol Hill. One key component—an extra $600 in weekly jobless benefits—is due to expire at the end of July, but lawmakers are still discussing whether and how to extend the aid. This is the part that isn't getting enough attention. That "stimulus" came in the form of treasury bonds. Those bonds need to be bought by... someone. Foreign central banks stopped net buying US treasuries a few years ago. At the same time, gold holdings by central banks have climbed. The world outside the US is thumbing its nose at US federal debt as a reserve asset. Without deep-pocket buyers, the interest rate on US debt will rise, and continue rising until a suitably-high interest rate can be found to justify the risk of loss. So the Fed has stepped into the void and bought the treasuries in unprecedented quantities: https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL It turns out even this isn't enough to soak up all the debt being issued. Regulations have been relaxed so that banks can claim treasury holdings as reserves. The Fed has deputized banks as holders of US debt. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200515a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre... This sets up a situation in which US treasury yields simply can't be allowed to spike because if that happened: 1. banks would suffer capital losses 2. the US government would become unable to sustain interest payments on new debt. That means forced cuts to entitlements and even the military. Clearly, this would spell disaster. So it's not going to happen. The Fed will keep buying and buying and buying. If need be, regulations will be changed to allow the Fed to buy things it has never been able to buy before. Like US stocks. The party can never, ever end. The balance sheet expansion will continue until some factor emerges that causes more pain as the balance sheet expands. I'm not sure what that factor could be, but it would come as a very big shock. For clues regarding the limit of Fed money printing, look to the enormous asset bubble that's developing in US stocks. The more the balance sheet expands, the bigger this bubble gets. And for the foreseeable future, the Fed can't stop printing. What breaks first?

mrep 6y ago
Japans central bank has 3 times the asset sheet to gdp ratio that we do. I think we got a while before anything breaks.

partingshots 6y ago

Not bad, the market was pricing in expectations of a 34.7% contraction.

JumpCrisscross 6y ago

GDP is a flow statistic, though we often discuss it as a stock. (Cash in the bank is a stock statistic. Cash inflows is a flow. Amount of stuff versus delta.) It's difficult to compare this quarter to those in 1918, given the dramatic differences in the composition of the economies and statistical methods. But a ~10% reduction in flows doesn't strike me as that bad to the country's long-term potential. The assets are mostly still there. And nobody is forgetting how to do their job in 3 to 6 months, though productivity in some sectors will take a hit from the changes.

binarymax 6y ago

Has anyone in currency exchange noticed signals of inflation? I track GBP=>USD and even in a post-Brexit COVID economy the rate changed from 1.23 in April to a peak of 1.30 on Tuesday. This really looks like inflation to me, but I'm not an expert.