WASHINGTON (Reuters): The US economy contracted at its steepest pace 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 historic plunge in gross domestic product reported by the Commerce Department on Thursday 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.
The collapse in GDP and faltering recovery put pressure on the White House and Congress to agree on a second stimulus package. President Donald Trump, whose opinion poll numbers have tanked as he struggles to manage the pandemic, economic crisis and protests over racial injustice three months before the 3 November 2019 election, said on Wednesday he was in no hurry.
Gross domestic product collapsed at a 32.9% 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 10% in the second quarter of 1958. The economy contracted at a 5% pace in the first quarter. It fell into recession in February.
Economists polled by Reuters had forecast GDP plunging at a 34.1% rate in the April-June quarter.
The Commerce Department’s Bureau of Economic Analysis, which compiles the GDP report, attributed the tumble in output to measures taken in March and April in response to COVID-19, saying they “led to rapid shifts in activity”.
Though activity picked up starting in May, momentum has slowed amid a resurgence in new cases of the respiratory illness, especially in the densely populated South and West regions where authorities in hard-hit areas are closing businesses again or pausing reopening. 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.
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 on Saturday. Many companies have exhausted their loans.
This, together with the sky-rocketing coronavirus infections is keeping layoffs elevated. In a separate report on Thursday, the Labour Department said initial claims for unemployment benefits increased 12,000 to a seasonally adjusted 1.434 million in the week ending 25 July. A staggering 30.2 million Americans were receiving unemployment checks in the week ending 11 July.
Consumer spending, which accounts for more than two-third of the US economy, plunged at a record 34.6% rate last quarter. That followed a 6.9% pace of decline in the January-March period. Major retailers including JC Penney and Neiman Marcus have filed for bankruptcy.
Business investment tumbled at a historic 27% rate. It was pulled down by spending on equipment, which collapsed at a 37.7% rate. Investment is equipment has now contracted for five straight quarters. Boeing reported a bigger-than-expected quarterly loss on Wednesday and slashed production on its wide-body programs.