The U.S. economy shrank by a nearly 33% annualized rate for the April-June quarter, the worst plunge since record-keeping began in 1947.
Amid the coronavirus pandemic, the country’s gross domestic product (GDP), which keeps track of the output of all goods and services, dropped by 32.9%. The worst drop before this quarter was 10% in 1958.
In the previous quarter, from January through March, the economy contracted by 5% and tens of millions lost their jobs. Numerous states have gone into lockdown to stem the spread of COVID-19, and more than 150,000 Americans have died from the virus, the Centers for Disease Control and Prevention says. The Dow dropped by more than 500 points on the news.
The report “just highlights how deep and dark the hole is that the economy cratered into in Q2,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC. “It’s a very deep and dark hole and we’re coming out of it, but it’s going to take a long time to get out.”
Tim Murtaugh, Trump 2020 communications director, said, “These economic numbers reflect April through June, when much of the economy was essentially closed down to save millions of American lives. The media is also grabbing onto the annualized number which supposes that the economic conditions will remain the same for an entire year, which it undoubtedly will not.”
Murtaugh also took a swipe at Joe Biden, saying that he “oversaw the worst economic recovery since the Great Depression, supported disastrous trade deals, promoted China’s economic advancement, and now promises to raise taxes on more than 80 percent of taxpayers and strangle job creation with the Green New Deal. To be clear, good news for Americans is bad news for Joe Biden, which is a pathetic position to be in for someone running for President of the United States.”
Still, the news was bad across the board. “Sharp contractions in personal consumption, exports, inventories, investment and spending by state and local governments converged to bring down GDP, which is the combined tally of all goods and services produced during the period,” CNBC wrote. “Personal consumption, which historically has accounted for about two-thirds of all activity in the U.S., subtracted 25% from the Q2 total, with services accounting for nearly all that drop.”
With millions of Americans staying in their homes and with restaurants, bars, movie theaters, and many businesses closed, consumer spending dropped at an annual rate of 34.6%. Business investment and home purchases also dropped sharply, with investment spending plunging 27% and residential housing plummeting 38.7%.
Andrew Hunter, senior U.S. economist at Capital Economics, said the plunge in GDP “underscores the unprecedented hit to the economy from the pandemic.”
“We expect it will take years for that damage to be fully recovered,” he told The Associated Press.
But not all spending dropped. While state and local government spending slipped at an annual rate of 5.6%, overall government spending increased 2.7%, with federal government spending rising 17.4%.
And personal income rose, powered in part by the $2 trillion stimulus package passed by Congress, which delivered $1,200 payments to millions of Americans. “Current-dollar personal income rose more than six-fold to $1.39 trillion, while disposable personal income shot up 42.1% to $1.53 trillion,” CNBC reported.
But throughout the pandemic, more than 40 million people lost their jobs, and the unemployment rate peaked at 14.7%, the highest since the Great Depression. More than 1 million people have applied for unemployment benefits for 19 weeks in a row, and the recovery has been slower than expected, with about a third of the lost jobs having been recovered.
“Bottom line, the numbers of course are alarming but all self inflicted with about half the quarter reflecting almost full shutdown and the other half the slow reopening,” Peter Boockvar, chief investment officer at the Bleakley Advisory Group told CNBC. “That said, it does reflect the hole out of which we now need to climb out of as we rebound in Q3 and Q4.”
This article and its title have been revised to clarify that the nearly 33% drop is in terms of an annualized rate.