Record collapse in GDP points to challenges for economic recovery
WASHINGTON – U.S. economic output fell at a stunning 32.9% annual rate in the second quarter – a level not seen since the Great Depression, according to data released Thursday.
The history-making contraction in the nation’s gross domestic product, which followed a 5% drop in the first quarter, was widely expected after the coronavirus
outbreak shut down large swaths of the economy and led to massive job losses in the spring.
By comparison, during the worst of the Great Recession, GDP – the total of all goods and services produced in the country – shrank at an annualized 8.4% pace in the final quarter of 2008. The single largest annualized quarterly decline since the Commerce Department’s records began in 1947 was 10% in early 1958.
The latest steep decline reflects what most economists see as the bottom of the recession. The new numbers include data from the mini-recovery that occurred before the latest surge in the COVID-19 pandemic.
Now with the coronavirus rampaging over large areas of the
country, measures of consumer spending, small-business activity and job openings are slowing again, casting a shadow over economic conditions many Americans will face as Election Day draws near.
A separate report Thursday from the Labor Department showed new unemployment claims rose last week to 1.43 million. It was the second straight week of increase – following about three months of steady declines – and brought the total number of people who have applied for jobless benefits since mid-march to more than 54 million.
Taken together, the new economic reports give new urgency to lawmakers who are wrangling over a new coronavirus relief package.
The nearly $3 trillion worth
of pandemic relief measures approved earlier by Congress has clearly buoyed the economy, but the effect of those initial programs is ebbing.
Many small businesses are running out of loans and grants that kept paychecks going out to at least some workers. State governments are financially distressed. And millions of jobless workers will see their enhanced unemployment benefit checks end this week.
Federal Reserve Chair Jerome H. Powell said Wednesday that additional fiscal support is “essential” for the recovery. He spoke particularly about the hardships of unemployment, which has fallen disproportionately on minorities, women and low-wage workers in service industries such as hotels, restaurants and entertainment
venues.
“Many of those people are going to find it hard (that) they can’t go back to their old job. There won’t be enough jobs for them. So I think those people are going to need support,” he said during a remote news conference. “I can’t say what the exact level should be. It is not our role. But they are going to need support if they are to be able to pay their bills, to continue spending money, to remain in their current rental house or apartment or house if they own it.”
The forecasting firm IHS
Markit is predicting the third quarter to grow at a 19.1% annual rate. But as much as that may represent a substantial rebound, analysts said that’s not what many people on the ground will be feeling. The
unemployment rate was 11.1% in June and is likely to remain in double digits through the fall.
Consumer spending, which accounts for about 70% of U.S. economic activity, fell nearly
35% in the second quarter. Business investments and exports tumbled as well. The only major component of GDP that grew over the quarter was government, thanks to the deficit-financed spending to help businesses and households.
“We fell down a huge hole in March and April, and we were only able to climb partway out,” said Ethan Harris, head of global economics research at Bank of America Merrill Lynch. “The challenge is that we’re now entering a period where you’re kind of stuck at the halfway point with the economy starting to level off again.”