US growth falls off a cliff with biggest hit since the Depression
THE US suffered its biggest collapse in growth since the Great Depression after Covid-19 dealt a hammer blow to the world’s biggest economy, sending markets tumbling around the world.
The stunning 32.9pc annualised slump between April and June – equivalent to a quarterly fall of 9.5pc – is the worst since official records began in 1947 and imperils president Donald Trump’s chances of remaining in the White House in November. According to Deutsche Bank, it is the worst hit to the economy in a single quarter since a catastrophic 35.4 slump in 1932.
Fears over a prolonged global recession sent the FTSE down 2.3pc, wiping £36bn off the value of the UK’s leading blue-chips. Markets in New York, Paris and Frankfurt also suffered falls.
The US economy is expected to mount a recovery in the current quarter. But a surge in new Covid cases has taken America’s death toll above 150,000 and forced several states to reverse reopening plans, stalling the economic fight-back.
There were further signs of waning momentum in the latest figures on benefit claims by newly unemployed workers, which rose by 1.43m in a second successive increase after 15 weeks of decline.
An additional 12m Americans are unemployed compared to before the pandemic, and Jay Powell, the Federal Reserve chairman, has warned of a “slowing in the pace of the recovery”.
Richard Flynn, of broker Charles Schwab, said: “With jobless claims at historically elevated levels, it is evident the US recovery may be in for a bumpy ride.” The data capped a dire day for economic news as Germany suffered a record 10.1pc slump, while Belgium and Austria’s output shrank by 12.2pc and 10.7pc respectively.
The US collapse followed a 5pc fall in the opening quarter when the pandemic pushed the economy into lockdown in March. The slump in consumer activity that followed – with spending tumbling at an annualised pace of 34.6pc – was the biggest driver of the second quarter fall.
Consumer spending accounts for 70pc of the US economy. One of the few areas of activity to expand was government spending, reflecting a $2 trillion relief package approved by Congress.
Talks are stalled over a new Republican package that aims to slash payouts by two-thirds to $200 a week and eventually replace them with a benefit equivalent to 70pc of workers’ previous wages.
ING’s US economist James Knightley said: “Covid-19 is far from beaten and while there is optimism about a vaccine, the timing and its efficacy are still unknown.”
Mr Trump is trailing Democratic challenger Joe Biden by as much as nine points in polls after fumbling his country’s response to the crisis.
Only one president in 100 years has won re-election less than a year after a recession and Mr Trump floated a delay to the poll on Twitter, asking if the US should “delay the election until people can properly, securely and safely vote?”.