US economy shrinks 4.8 pct last quarter, with worst yet to come
Pending home sales sank 20.8% in March
WASHINGTON, April 30, (AP): The U.S. economy shrank at a 4.8% annual rate last quarter as the coronavirus pandemic shut down much of the country and began triggering a recession that will end the longest expansion on record.
Yet the drop in the JanuaryMarch quarter will be only a precursor of a far grimmer report to come on the current April-June period, with business shutdowns and layoffs striking with devastating force. With much of the economy paralyzed, the Congressional Budget Office has estimated that economic activity will plunge this quarter at a 40% annual rate.
That would be, by a breathtaking margin, the bleakest quarter since such records were first compiled in 1947. It would be four times the size of the worst quarterly contraction on record set in 1958.
The Commerce Department estimated Wednesday that the gross domestic product, the total output of goods and services, posted a quarterly drop for the first time in six years. And it was the sharpest fall since the economy shrank at an 8.4% annual rate in the fourth quarter of 2008 in the depths of the Great Recession.
“The longest U.S. economic expansion has ended,” said Gregory Daco, chief economist at Oxford Economics.
Daco predicted that the recession will cause a drop in output that will be three times the size of the economic decline during the Great Recession.
In just a few weeks, businesses across the country have shut down and laid off tens of millions of workers. Factories and stores are shuttered. Home sales are falling. Households are slashing spending. Consumer confidence is sinking.
The GDP report showed that the weakness was led by plummeting consumer spending, which accounts for 70% of economic activity. Consumer spending tumbled at an annual rate of 7.6% in the first quarter - its steepest decline since 1980.
Business investment was also weak: It sank 2.6%, with investment in equipment down a sharp 15.2%.
A rare bright spot in the report was trade, which added 1.3 percentage points to GDP activity in the quarter. Government spending was up 0.7% in the first quarter, a figure that will likely accelerate with all of the support Congress has approved for rescue packages.
And housing showed a 21% increase in the first quarter, boosted by lower mortgage rates. But home sales, like much of the economy, have taken a nosedive since the virus-related shutdowns began in mid-March.
The Commerce Department’s report Wednesday was its first estimate of GDP for the January-March quarter. It will issue two updated estimates in the coming weeks.
The Trump administration takes a rosier view. President Donald Trump told reporters this week that he expects a “big rise” in GDP in the third quarter, followed by an “incredible fourth quarter, and you’re going to have an incredible next year.”
The president is building his re-election campaign on the argument that he built a powerful economy over the past three years and can do so again after the health crisis has been resolved.
In a separate report, U.S. home sales showed signs of collapsing in March, as the number of contract signs plunged sharply because of the coronavirus outbreak.
The National Association of Realtors said Wednesday that its pending home sales index, which measures signed buyer contracts, plummeted a seasonally adjusted 20.8% in March from the prior month to a reading of 88.2. That is the lowest level since May 2011, when the housing market was still dealing with foreclosures and crashing prices from the Great Recession. Pending sales have fallen 16.3% from a year ago.