Bleak economic figures point to struggles ahead for US economy

Coronavirus keeps forcing more layoffs

WASHINGTON, Aug 5, (AP): A grim picture emerged last week of a US economy that endured a record-shattering plunge last quarter and is now struggling to rebound as the coronavirus keeps forcing more layoffs.

The economy shrank at a dizzying 32.9% annual rate in the April-June quarter, when the viral outbreak shut down businesses, throwing tens of millions out of work and sending unemployment surging to nearly 15%.

The government’s estimate of the second-quarter fall in the gross domestic product was the sharpest such drop on records dating to 1947. The previous worst quarterly contraction, a 10% drop, occurred in 1958 during the Eisenhower administration.

Soon after the government issued the bleak economic data, President Donald Trump diverted attention by suggesting a “delay” in the Nov 3 presidential election, based on his unsubstantiated allegations that widespread mail-in voting will result in fraud. The dates of presidential elections are enshrined in federal law and would require an act of Congress to change.

So steep was the economic fall last quarter that most analysts expect the economy to produce a sharp bounceback in the current July-September period. Yet with the rate of confirmed coronavirus cases having surged in a majority of states, more businesses being forced to pull back on re-openings and the Republican Senate proposing to scale back government aid to the unemployed, the economy could worsen in the months ahead.

In a sign of how weakened the job market remains, more than 1.4 million laid-off Americans applied for unemployment benefits last week. It was the 19th straight week that more than 1 million people have applied for jobless aid. Before the coronavirus erupted in March, the number of Americans seeking unemployment checks had never exceeded 700,000 in any one week, even during the Great Recession.

An additional 830,000 million people applied for unemployment benefits under a new program that extends eligibility for the first time to self-employed and gig workers. All told, the government says roughly 30 million people are receiving some form of jobless aid, though that figure might be inflated by double-counting by some states.

The pain could soon intensify: A supplemental $600 in weekly federal unemployment benefits is expiring, and Congress is squabbling about extending the aid, which will probably be done at some reduced level of payment.

Last quarter’s economic drop followed a 5% fall in the January-March quarter, during which the economy officially entered a recession triggered by the virus, ending an 11-year economic expansion, the longest on record in the United States.

The grim economic news deepened losses on Wall Street. The Dow Jones Industrial Average was down more than 400 points in late-morning trading.

The economic harm from the virus is extending well beyond the United States. On Thursday, Germany reported that its GDP tumbled 10.1% last quarter. It was the biggest such drop on records dating to 1970. And Mexico’s GDP sank 17.3% last quarter, also a record.

The US contraction was driven by a deep pullback in consumer spending, which accounts for about 70% of economic activity. Spending by consumers collapsed at a 34.6% annual rate as travel all but froze and shutdown orders forced many restaurants, bars, entertainment venues and other retail establishments to close.

The plunge in GDP “underscores the unprecedented hit to the economy from the pandemic,” said Andrew Hunter, senior US economist at Capital Economics. “We expect it will take years for that damage to be fully recovered.”

A resurgence of viral cases in the South and the West has forced many bars, restaurants, beauty salons and other businesses to close again or reduce occupancy. Between June 21 and July 19, for example, the proportion of Texas bars that were closed shot up from 25% to 73%. Likewise, 75% of California beauty shops were shuttered July 19, up from 40% just a week earlier, according to the data firm Womply.

And many states have imposed restrictions on visitors from states that have reported high level of virus cases, thereby hurting hotels, airlines and other industries that depend on travel.

Rubeela Farooqi, chief US economist at High Frequency Economics, said the job numbers were disheartening.