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GDP falls in line with expectations, eyes on second half 2020

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The Commerce Department said that the economy shrank by 5 percent in the first quarter of 2020 as the effects of the COVID-19 shutdown took hold. Previously, economists estimated that GDP would shrink 4.8 percent.

Given the uncertainty about the economy in relation to the pandemic, the slowdown was generally in line with expectations.  

China, by contrast, saw its economy contract by 6.8 percent due to the coronavirus, although China endured a lockdown of the economy for a longer portion of the first quarter versus the U.S.

Chinese economic statistics are also notoriously unreliable.

Earlier, Japan reported shrinkage of 3.4 percent from the January to March period, while Germany, France and the UK said that their economies contracted 2.2 percent, 5.3 percent, and 5.8 percent respectively.

Still, the worst news for the U.S. should come in the current, second quarter. Economist see GDP dropping off between 30-40 percent annualized, according to Kiplinger’s staff economist David Payne.

The Atlanta Federal Reserve’s widely-watched GDPNow Cast is showing a contraction of 51.2 percent for second quarter US GDP. The Fed’s model, however, doesn’t take into account increasing economic activity as the economy reopens.

As expected the first quarter saw corporate profits plunge in the U.S.

“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,” says the Commerce Department.

Consumer spending dipped sharply in autos and in health care, with elective procedures being bumped to make room for COVID patients. Housing, exports and federal spending were the only positive notes to the GDP report, says Payne.

For the second half of the year, top Trump economic advisor, Larry Kudlow, is lobbying for bonuses for workers who return to work, saying that the inflated unemployment benefits were a mistake.

“We will have some bonus payments for people who go back to work. That is being studied. There are some good proposals in the Senate and in the White House we’re going to look at that, so we will try to restore the incentives” to go back to work,” Kudlow told NewsmaxTV.

The White House is also considering cutting payroll taxes for employees, cutting taxes on investments and adding incentives for companies that come back to the United States.

Team Trump is hoping to dominate the fall with an historic economic turnaround, turning the negative pandemic into a positive reelection campaign.

“We agree with the Congressional Budget Office,” said Kudlow, “in the second half of this year, we could see growth of 20% at an annual rate, which would be the fastest growth in American history. That’s what we’re looking toward right now as we reopen.”

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