International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Monday, June 1, 2020

Gross Domestic Product, 1st Quarter 2020 (Second Estimate); Corporate Profits, 1st Quarter 2020 (Preliminary Estimate)

Real gross domestic product (GDP) decreased at an annual rate of 5.0 percent in the first quarter of 2020 (table 1), according to the "second" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.1 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the decrease in real GDP was 4.8 percent. With the second estimate, a downward revision to private inventory investment was partly offset by upward revisions to personal consumption expenditures (PCE) and nonresidential fixed investment (see "Updates to GDP" on page 2).

Real GDP: Percent change from preceding quarter, Q1 2020 (2nd)
Coronavirus (COVID-19) Impact on the First-Quarter 2020 GDP Estimate
The decline in first quarter GDP reflected the response to the spread of COVID-19, as governments issued "stay-at-home" orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and 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 the impacts are generally embedded in source data and cannot be separately identified. For more information, see the Technical Note.

The decrease in real GDP in the first quarter reflected negative contributions from PCE, private inventory investment, nonresidential fixed investment, and exports that were partly offset by positive contributions from residential fixed investment, federal government spending, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased (table 2).

The decrease in PCE reflected a decrease in services, led by health care as well as food services and accommodations. The decrease in private inventory investment was mainly in nondurable goods manufacturing, led by petroleum and coal products. The decrease in nonresidential fixed investment primarily reflected a decrease in equipment, led by transportation equipment. The decrease in exports primarily reflected a decrease in services, led by travel.

Real gross domestic income (GDI) decreased 4.2 percent in the first quarter, in contrast to an increase of 3.1 percent (revised) in the fourth quarter. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, decreased 4.6 percent in the first quarter, in contrast to an increase of 2.6 percent in the fourth quarter (table 1).

Current‑dollar GDP decreased 3.5 percent, or $191.6 billion, in the first quarter to a level of $21.54 trillion. In the fourth quarter, GDP increased 3.5 percent, or $186.6 billion (tables 1 and 3).

The price index for gross domestic purchases increased 1.7 percent in the first quarter, compared with an increase of 1.4 percent in the fourth quarter (table 4). The PCE price index increased 1.3 percent, compared with an increase of 1.4 percent. Excluding food and energy prices, the PCE price index increased 1.6 percent, compared with an increase of 1.3 percent.

More information on the source data that underlie the estimates is available in the "Key Source Data and Assumptions" file on BEA's website.

Updates to GDP

In the second estimate, first-quarter real GDP decreased 5.0 percent from the fourth quarter, a downward revision of 0.2 percentage point. The revision primarily reflected a downward revision to private inventory investment that was partly offset by upward revisions to PCE and nonresidential fixed investment. For more information, see the Technical Note. For information on updates to GDP, see the "Additional Information" section below.

  Advance Estimate Second Estimate
(Percent change from preceding quarter)
Real GDP -4.8 -5.0
Current-dollar GDP -3.5 -3.5
Real GDI -4.2
Average of Real GDP and Real GDI -4.6
Gross domestic purchases price index 1.6 1.7
PCE price index 1.3 1.3
PCE price index excluding food and energy 1.8 1.6

For the fourth quarter of 2019, the percent change in real GDI was revised from 2.6 percent to 3.1 percent based on new fourth-quarter data from the BLS Quarterly Census of Employment and Wages.

Corporate Profits

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $295.4 billion in the first quarter, in contrast to an increase of $53.0 billion in the fourth quarter (table 10).

Profits of domestic financial corporations decreased $67.4 billion in the first quarter, in contrast to an increase of $0.7 billion in the fourth quarter. Profits of domestic nonfinancial corporations decreased $169.5 billion, in contrast to an increase of $53.7 billion. Rest-of-the-world profits decreased $58.6 billion, compared with a decrease of $1.4 billion. In the first quarter, receipts decreased $72.7 billion, and payments decreased $14.2 billion.

Upcoming Annual Update of the National Income and Product Accounts
BEA will release results from the 2020 annual update of the National Income and Product Accounts on July 30, 2020, in conjunction with the advance estimate of GDP for the second quarter of 2020. For estimates of real GDP and its major components, the span of the update will cover the most recent five years (2015-2019) and the first quarter of 2020. Estimates of income and saving will be subject to revision from 1999 through the first quarter of 2020. More information on the 2020 annual update is included in the May Survey of Current Business article, "GDP and the Economy."

https://lawprofessors.typepad.com/intfinlaw/2020/06/gross-domestic-product-1st-quarter-2020-second-estimate-corporate-profits-1st-quarter-2020-preliminary-estimate.html

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