WASHINGTON: The US economy suffered its biggest blow since the Great Depression in the second quarter as the Covid-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new cases of coronavirus.
The bulk of the deepest contraction in at least 73 years reported by the Commerce Department yesterday occurred in April when activity almost ground to an abrupt halt after restaurants, bars and factories among others were shuttered in mid-March to slow the spread of coronavirus.
More than five years of growth have been wiped out. With the recovery faltering, pressure is mounting for the White House and Congress to agree on a second stimulus package. President Donald Trump, who is trailing Democratic challenger Joe Biden in opinion polls, said he was in no hurry. Trump yesterday raised the possibility of delaying the Nov. 3 presidential election.
“This is hard to swallow,” said Jason Reed, finance professor at the University of Notre Dame’s Mendoza College of Business. “Right now, the American economy is speeding toward a fiscal cliff. Not only do we need Americans to take serious action preventing the spread of the disease, but we also need Congress to agree on another stimulus package and quickly.”
Gross domestic product collapsed at a 32.9 per cent annualised rate last quarter, the deepest decline in output since the government started keeping records in 1947. The drop in GDP was more than triple the previous all-time decline of 10pc in the second quarter of 1958. The economy contracted at a 5.0pc pace in the first quarter. It fell into recession in February.
Economists polled by Reuters had forecast GDP slumping at a 34.1pc rate in the April-June quarter.
On a year-on-year basis GDP fell a record 9.5pc last quarter. Output shrank 10.6pc in the first half. The level of GDP has dropped to levels last seen in the last quarter of 2014.
Though activity picked up starting in May, momentum has slowed amid the explosion of Covid-19 infections, especially in the densely populated South and West regions where authorities in hard-hit areas are closing businesses again and pausing reopenings. That has tempered hopes of a sharp rebound in growth in the third quarter.
Federal Reserve chair Jerome Powell on Wednesday acknowledged the slowdown in activity. The US central bank kept interest rates near zero and pledged to continue pumping money into the economy.
Trump’s campaign shrugged off the GDP slump, saying the economy was “rebounding.” Biden blamed a leadership “failure,” and urged “a massive public health response to save lives and get our economy back up to speed.”
Stocks on Wall Street fell. The dollar dipped against a basket of currencies. US Treasury prices rose.
Economists say without the historic fiscal package of nearly $3 trillion, the economic contraction would have been deeper. The package offered companies help paying wages and gave millions of unemployed Americans a weekly $600 supplement, which expires today. Many companies have exhausted their loans.
This, together with the sky-rocketing Covid infections is keeping layoffs elevated. In a separate report yesterday, the Labor Department said initial claims for unemployment benefits increased 12,000 to a seasonally adjusted 1.434 million in the week ending July 25. A staggering 30.2m Americans were receiving unemployment cheques in the week ending July 11.