US GDP shrank at an annualized q/q rate of -32.9% in Q2, much as expected. This equates to an actual -9.5% q/q decline from Q1 to Q2, and a -9.5% y/y decline from 2Q19.

The composition of US GDP growth in Q2 was: -32.9 = -25.1 consumption -3.6 business investment -1.8 housing -4.0 inventories +0.8 government spending +0.7 net exports

The biggest factor was a collapse in household consumption, due to shutdowns and (possibly) unemployment, which fell at an annual rate of -34.6% (down from -4.9% in Q1), and shaved -25.1 points from GDP growth.

Business investment shrank at an annualize rate of -27.0% in Q2 (down from -6.7% in Q1), shaving a further -3.6 points off GDP growth. This was compounded by businesses scaling back their inventories, which cut a further -4.0 points off growth.

Residential investment shrank at an annualized rate of -38.7% in Q2, after surging +19.0% in Q1. This shaved -1.8 points off GDP growth, and put an end to a 3-quarter positive streak in housing.

Government spending rose +2.7% and picked up a tiny part of the slack, restoring just +0.8 points to GDP growth. This was led by federal spending, which rose +17.4%, and in particular by federal non-defense spending, which surged +39.7%.

State and local government spending, in contrast, shrank at an annualized rate of -5.6% in Q2.

The US trade deficit shrank in Q2, restoring +0.7 points to GDP growth. Unfortunately, this came from a big drop in both exports and imports. Exports fell at an annualized rate of -64.1%, and imports fell -53.4%.

Looking an annualized growth rates can be a bit misleading, when trying to gauge the absolute size of the drop.

Adjusted for inflation, US exports fell -22.6% from Q1 to Q2, and were down -23.7% from 2Q19. US imports fell -17.4% from Q1 to Q2, and were down -22.1% from 2Q19.

This statement goes for all the numbers. Annualized q/q is standard in US GDP reporting, so it's the reference point we're all used to. But here we are more concerned with HOW MUCH THE US ECONOMY SHRANK last quarter, and annualizing the figure can give a misleading impression.

The absolute quantity of US economic activity hasn't shrunk by 1/3. It has shrunk by a bit more than 10% since the start of the year.

The PCE price index fell -1.9% (at an annualized q/q rate) in Q2, down from a rise of +1.3% in Q1. This suggests real deflationary pressure, but the picture is a bit mixed (food prices have risen, energy prices have fallen).

Core PCE (excluding food and energy) fell -1.1% in Q2, down from +1.6% in Q1. This suggests that, the crosscurrents from higher food prices and lower energy prices aside, the broader pressure being felt is deflationary.

Despite some rather dramatic - even historic - numbers in today's GDP report, there were few surprises. The big question in everyone's mind is how much better Q3 ends up looking.