Q1 GDP reading is a hard story to tell

It is pretty fair to say that the first quarter United States GDP number was going to be dismal. And now that presumption has become a reality, with the first quarter advanced estimate GDP tally, which was released today by theUnited States Department of Commerce, coming in at -4.8%, its lowest reading going back to the Great Recession period of 2008 and 2009 (and well off from the fourth quarter of 2019’s 2.1% GDP reading), as well as marking the first quarterly decline going back to 2014.

Clearly, this decline did not come out of nowhere, given the ongoing damage theCOVID-19, or coronavirus, pandemic has inflicted on just about all aspects of everyday life, whether you are approaching it from one of many perspectives, like healthwise, economically, societal, or, for us, with a focus on logistics and the supply chain.

The -4.8% GDP tally is a tough one to swallow, to say the least, but many stakeholders such as economists, logisticians, and academics, among others, maintain that this reading may pale in comparison around mid-year, when the second quarter GDP reading is issued. That is a really scary thought, to be sure.

But it is hard not to have seen it coming, as it has been a topic of discussion for a while, with various freight indicators leading the charge with that sentiment in the form of declining United States-bound waterborne imports, which is directly tied to an ongoing slump in intermodal volumes, and, by extension, truck tonnage, too.

The word tying these modal facets together is, and remains, “demand,” or, more specifically, the lack thereof. Not surprisingly, it remains a very tough story to tell, and, taking it one step further, it is very uncertain as to how long it will be until the pain truly stops and things resume on a path to normalcy.

更重要的是,lack of demand is likely to be more than a short-term thing, given how COVID-19 has led to business activity falling off a cliff for so many companies, coupled with the millions of new unemployment claims in recent weeks, leaving consumers cautious, when it comes to making discretionary purchases.

And, with things already depressed to such low levels economically, various reports are indicating that second quarter GDP could dwarf the first quarter’s nearly 5% decline by a multiple of six, or something close to it. Now, that is depressing. I am, in no way, trying to make light of the current situation; it is just a mind-boggling possibility, which may unfortunately come to fruition.

And it all takes on an added onus, when considering that the impact of COVID-19 was really only intact for such a small percentage of the first quarter. Look at this Tweet from Jonathan Starks, an analyst/forecaster for heavy-freight and truck equipment markets at freight transportation consultancy FTR.

“U.S. GDP shrunk 4.8% in Q1,” Starks wrote. “The response to containment was swift and extreme. Q1 was only fully impacted for ~3 weeks. We are 4 weeks and going during Q2. The GDP response will be even bigger.”

That is not encouraging, even if we can all see it coming. And that was evident in observations, also via Twitter, from Bob Costello, Chief Economist and Vice President for the American Trucking Associations.

“With only two weeks of shutdowns in the second half of March, economic growth posted the second worst reading this century. Scary thought for the Q2 [GDP] reading,” wrote Costello. “Trucking overall did better in Q1 than the overall economy because of the surge in consumer staples and groceries. But our payback is in Q2. It will be a tough quarter.”

Perhaps when we get through the second quarter, which will be replete with challenges, there will be increased visibility on the economic front, spurred on by what may be a very measured and cautious re-opening of the economy, something that is gaining steam, especially on a state-by-state level, of late. But that remains to be seen. In the meantime, we will all do what we can and what is required to get through these unprecedented times.