Economy shrank at fastest ever quarterly rate

Tens of millions of jobs were erased, businesses were gutted

WASHINGTON — The U.S. economy shrank by 9.5% April through June, a historic contraction and stinging reminder of how much was lost in such a short period of time.

The drop in Gross Domestic Product was the fastest the quarterly rate has fallen in modern record keeping. As the ground beneath the economy buckled, tens of millions of jobs were erased, businesses were gutted and the future of the economy became further intertwined with an uncontrolled public health crisis.

With that pain still fresh for millions of Americans, economists say the second quarter stands as an urgent warning for what’s at stake if the vestiges of the recovery from earlier this summer vanish. While Congress clashes over another stimulus bill, and the virus forces more states to shut down bars and restaurants again, there’s mounting fear that the economy could be held back even more and make a true recovery far more fraught.

The second quarter report on gross domestic product covers some of the economy’s worst weeks in living memory, when commercial activity ground to a halt, millions of Americans lost their jobs and the nation went into lockdown. Yet economists say the data should also serve as a cautionary tale for what is at stake if the recovery slips away, especially as rising coronavirus cases in some states have forced businesses to close once again.

On Thursday, the government also reported that jobless claims increased once again last week to 1.4 million, another sign any recovery is stalling out.

GDP shrank at an annual rate of 32.9%, according to the Bureau of Economic Analysis, the agency that publishes the statistics on quarterly economic activity. While it usually stresses the annualized rate, that figure is less useful this quarter because the economy is unlikely to experience another collapse like it did in the second quarter.

Still, while a tailspin at the second quarter rate is unlikely, the nascent recovery that began appearing earlier this summer appears to be in jeopardy.

On Wednesday, Federal Reserve Chair Jerome Powell warned that the most recent surge in infections has begun to weigh on the economy, while reemphasizing a recovery cannot be sustained unless the virus is under control.

“We’re still digging out of a hole, a really deep hole,” said Ben Herzon, executive director of IHS Markit. “The second quarter figure will just tell us the size of the hole we’re digging out of, and it’s a big one.”

Thursday’s report helps explain which parts of the economy suffered as people stayed home, cut back their spending and suddenly overhauled their routines. With retail stores shuttered and people swapping out their work wardrobes for leisure wear, clothing and footwear sales dropped. The pandemic also triggered a collapse in oil prices, exacerbated by lower gasoline sales and dampened transportation services, as Americans stayed home and avoided commutes or basic errands.

Health care fell off as the pandemic pushed people to cancel nonemergency visits and procedures.