The US government’s estimate of the second-quarter fall in the gross domestic product was the sharpest such drop on record dating back to 1947, though slightly less bad than expected.
The US economy has plunged by a record-shattering 32.9 percent annual rate last quarter, and the coronavirus pandemic is still cutting a path of destruction, forcing millions out of work and shuttering businesses.
The economy’s stunning contraction in the April-June quarter came as the viral outbreak pushed already struggling businesses to close for a second time in many parts of the country, sending unemployment surging to nearly 15 percent. The government’s estimate of the second-quarter fall in the gross domestic product was the sharpest such drop on record dating back to 1947, though slightly less bad than expected. The previous worst quarterly contraction, a 10 percent drop, occurred in 1958 during the Eisenhower administration.
The Commerce Department figures are an annual rate, so not comparable to the quarterly contractions reported in other advanced economies.
Trump diverts attention
Soon after the government issued the bleak economic data, President Donald Trump diverted attention by suggesting a “delay” in the November 3 presidential election, based on his unsubstantiated allegations that widespread mail-in voting would result in fraud. The dates of presidential elections are enshrined in federal law and would require an act of Congress to change.
With Universal Mail-In Voting (not Absentee Voting, which is good), 2020 will be the most INACCURATE & FRAUDULENT Election in history. It will be a great embarrassment to the USA. Delay the Election until people can properly, securely and safely vote???— Donald J. Trump (@realDonaldTrump) July 30, 2020
So steep was the economic fall last quarter that most analysts expect the economy to produce a sharp bounce-back in the current July-September period. Yet with the rate of confirmed coronavirus cases having surged in a majority of states, more businesses being forced to pull back on reopenings and the Republican Senate proposing to scale back government aid to the unemployed, the economy could worsen in the months ahead.
Unemployment numbers rise
In a sign of how weakened the job market remains, more than 1.4 million laid-off Americans applied for unemployment benefits last week. It was the 19th straight week that more than 1 million people have applied for jobless aid. Before the coronavirus erupted in March, the number of Americans seeking unemployment checks had never exceeded 700,000 in any one week, even during the Great Recession.
An additional 830,000 people applied for unemployment benefits under a new program that extends eligibility for the first time to self-employed and gig workers. All told, the government says roughly 30 million people are receiving some form of jobless aid, though that figure might be inflated by double-counting in some states.
The pain could soon intensify: a supplemental $600 in weekly federal unemployment benefits is expiring, and Congress is squabbling about extending the aid, which will probably be done at some reduced level of payment.
Last quarter’s economic drop followed a five percent fall in the January-March quarter, during which the economy officially entered a recession triggered by the virus, ending an 11-year economic expansion, the longest on record in the United States.
The grim economic news deepened losses on Wall Street. The Dow Jones Industrial Average was down more than 300 points in late-morning trading.
The economic harm from the virus is extending well beyond the United States. On Thursday, Germany reported that its GDP tumbled 10.1 percent last quarter. It was the biggest such drop on record dating to 1970. And Mexico’s GDP sank 17.3 percent last quarter, also a record.
Drop in consumer spending
The US contraction was driven by a deep pullback in consumer spending, which accounts for about 70 percent of economic activity. Spending by consumers collapsed at a 34.6 percent annual rate as travel all but froze and shutdown orders forced many restaurants, bars, entertainment venues and other retail establishments to close.
The plunge in GDP “underscores the unprecedented hit to the economy from the pandemic,” said Andrew Hunter, senior US economist at Capital Economics. “We expect it will take years for that damage to be fully recovered.”
A resurgence of viral cases in the South and the West has forced many bars, restaurants, beauty salons and other businesses to close again or reduce occupancy. Between June 21 and July 19, for example, the proportion of Texas bars that were closed shot up from 25 percent to 73 percent. Likewise, 75 percent of California beauty shops were shuttered on July 19, up from 40 percent just a week earlier, according to the data firm Womply.
And many states have imposed restrictions on visitors from states that have reported a high level of virus cases, thereby hurting hotels, airlines and other industries that depend on travel.
Rubeela Farooqi, chief US economist at High Frequency Economics, said the job numbers were disheartening.
“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,” Farooqi said. “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.”
Job market 'frustrating and demoralising'
The picture looks dim for many of the jobless. Since she was laid off by a tech industry nonprofit in mid-May, Miranda Meyerson has been trying to find another job and to sign up for unemployment benefits.
“It’s just incredibly frustrating and demoralising,’’ she said. Potential employers seem to be delaying hiring decisions.
“Nobody gets back to you,’’ said Meyerson, 38. “You feel like there’s only so long you can submit (applications) into a void.’’
Meyerson and her partner had moved from New York to Oakland, California, in March, just as the virus began to spread rapidly across the United States. The move complicated her efforts, so far futile, to collect benefits from a swamped California unemployment benefits system.
“They’re obviously totally overwhelmed,” she said. “You can’t even get on the phone to talk to anybody.’’
Many economists note that the economy can’t fully recover until the pandemic is defeated — a point stressed on Wednesday at a news conference by Federal Reserve Chair Jerome Powell. The Fed chairman warned that the viral epidemic has been endangering a modest economic recovery and that as a result, the Fed plans to keep interest rates pinned near zero well into the future.
“A poorly managed health situation and depressed incomes means the economy risks a double-dip recession without urgent fiscal aid,” said Gregory Daco, chief US economist at Oxford Economics.
“Fiscal aid is a must pass,” Daco said. “Without further fiscal assistance, many households across the country are going to be left without much of an income stream and will react by severely cutting back on spending.”
Daco said the expiration of the $600 in federal unemployment aid means that many households could suffer a loss of income in the range of 50 percent to 75 percent.
“The economy," Daco said, “is going to be running on very little fuel at a point when the recovery has really stalled.”