US braces for more misery

The US economy shrank in the first quarter at its fastest pace since the Great Depression as strict measures to slow the spread of Covid-19 almost shut the country down, ending its longest expansion.

The US economy shrank in the first quarter at its fastest pace since the Great Depression as strict measures to slow the spread of Covid-19 almost shut the country down, ending its longest expansion.

The fall in GDP reflected a plunge in economic activity in the last two weeks of March with millions of Americans claiming unemployment benefits. The commerce department’s snapshot of first-quarter GDP on Wednesday reinforced analysts’ predictions that the economy was already in a deep recession.

“The economy will continue to fall until the country opens back up,” said Chris Rupkey, chief economist at MUFG in New York. “If the economy fell this hard in the first quarter, with less than a month of pandemic lockdown for most states, don’t ask how far it will crater in the second quarter.”

GDP fell at a 4.8% annualised rate last quarter, weighed down by sharp drops in consumer spending and a drawdown of inventory at businesses. That was the steepest pace of GDP contraction since the fourth quarter of 2008.

A deepening downturn in investment by businesses was another major factor in the slump last quarter, helping to overshadow positive news from a shrinking import bill, the housing market and more government spending.

Economists polled by Reuters had forecast GDP falling 4.0% last quarter. The economy grew 2.1% in the fourth quarter.

The commerce department’s Bureau of Economic Analysis (BEA) said it could not quantify the full effects of the pandemic, but that the virus had partly contributed to the fall in GDP in the first quarter.

The BEA said “stay-at-home” orders in March had “led to rapid changes in demand, as businesses and schools switched to remote work or cancelled operations, and consumers cancelled, restricted, or redirected their spending.”