Investors Should Brace For A Record Decline in GDP

Investors Should Brace For A Record Decline in GDP

Submitted by Joseph Carson, Former Director of Global Economic Research, Alliance Bernstein

Two of largest quarterly declines in economic activity during the post war period occurred during a financial crisis and a widespread cessation of consumer and business activity triggered by uncertainty (and panic) following the federal government announcement of credit controls. The current environment has some elements of both prior episodes raising the possibility that the decline in economic activity in upcoming quarters could rival the large declines that occurred in 1980 and 2008.

GDP’s Largest Quarterly Declines

In the past 60 years, the US economy experienced two exceptionally large quarterly declines in real GDP. In Q4 2008 real GDP dropped an astounding 8.4% annualized and in Q2 1980 real GDP contracted 8.0%. The forces behind each decline, as well as the composition, were markedly different but both episodes can still provide some guidance on what to expect.