Economy shrinks by shocking 33%
The U.S. economy’s pandemic plunge reached a staggering new low in the year’s second quarter — with the worst perhaps still ahead.
The COVID-19 crisis produced a record-shattering 32.9% contraction from April through June, the worst by many, many miles since the federal government began keeping track in 1947, the Bureau of Economic Analysis said in a devastating Thursday report. The previous worst quarter was a 10% drop during the Eisenhower administration back in 1958.
Over the past three months, coronavirus caused thousands of businesses to shut down and cost tens of millions of American jobs as the unemployment rate soared to nearly 15%.
President Trump’s non sequitur response to the depressing news was a tweet suggesting a delay in the nation’s Nov. 3 presidential election, ignoring the economic elephant in the Oval Office. But experts saw few if any signs of an impending uptick, particularly as the COVID-19 numbers continue to increase in 30 states.
The dramatic hit to the Gross Domestic Product “underscores the unprecedented hit to the economy,” noted Andrew Hunter, senior U.S. economist at Capital Economics. “We expect it will take years for that damage to be fully recovered.”
The double-digit fall comes on top of a 5% drop in the January-March quarter, when the economy officially entered a recession to end an 11-year economic expansion dating to President Barack Obama’s first term.
But there was even more bad news: The federal government announced that more than 1.4 million displaced workers applied for unemployment benefits last week, suggesting that layoffs are continuing across the country as multiple states struggle to contain the spread of COVID-19.
It marked the 19th straight week in which more than 1 million American workers sought unemployment, coupled with the news that U.S. consumer spending was down 34.6% last quarter as people continued to stay home while local bars, restaurants, movie theaters and sports facilities remain closed or under restriction.
Rubeela Farooqi, chief U.S. economist at High Frequency Economics, echoed fears that things could get worse before the tide begins to turn.
“A resurgence in virus cases has resulted in a pause or rollback of reopenings across states, and the pace of layoffs is likely to pick up just as expanded unemployment benefits are expiring,” said Farooqi. “The risk of temporary job losses becoming permanent is high from repeated closures of businesses. That could result in an even slower pace of recovery.”
The U.S. wasn’t alone in its economic misery. Germany reported a 10.1% drop in its GDP last quarter while Mexico’s shrank at a 17.3% annual rate during the same period.
The virus-driven economic nightmare could intensify in the coming days as a federally funded $600 weekly unemployment bonus is set to expire this week. Republicans and Democrats appear far from reaching a deal on a new coronavirus relief package.