The U.S. economy shrank at a 4.8% annual rate in the first quarter as the coronavirus pandemic prompted states to shut down businesses and led companies to layoff more than 26 million Americans.
After the longest economic expansion in history under President Trump, the gross domestic product (GDP) posted a quarterly drop for the first time in six years, the Commerce Department said Wednesday. The GDP measures the total output of goods and services in the economy.
The 4.8% drop was the highest since the economy shrank at an 8.4% annual rate in the fourth quarter of 2008, during the Great Recession.
“Forecasters say the drop in the January-March quarter will be only a precursor of a far grimmer GDP report to come on the current April-June period, with business shutdowns and layoffs striking with devastating force. The Congressional Budget Office has estimated that GDP will plunge this quarter at a 40% annual rate,” The Associated Press reported.
Last Thursday, the Labor Department announced another 4.3 million workers filed for unemployment claims in the week ended April 18, bringing the total filings since late March to more than 26.3 million, according to CNBC. The week before, jobless claims in the U.S. rose by 5,245,000 amid the coronavirus pandemic, bringing the total number filing for unemployment in the previous four weeks to nearly 22 million, by far the worst stretch of job losses in U.S. history.
About 12 million people are receiving monthly unemployment checks, the Labor Department reported, a number last reached in January 2010, just after the Great Recession officially ended.
“The job losses are historic,” economist Julia Coronado told NBC News. “It means that we are going to be in for a double-digit unemployment rate.”
Nearly every state has shut down businesses deemed nonessential, which includes bars, restaurants and most retail stores, but The AP reported that “white collar professional occupations, including software programmers, construction workers and sales people” are beginning to see mass layoffs.
Unemployment is expected to soar to 15% during the second quarter of the year, according to a forecast by Goldman Sachs released last week.
James Bullard, president of the St. Louis Fed, said in an interview with Bloomberg TV that things may be even worse.
“If you read the blog carefully, you’ll see that there is a way to bound the unemployment rate – it’s going to be somewhere between 10 percent and, I think, the upper bound is around 42 percent,” he said.
The Fed’s “back-of-the-envelope” calculations use two different models to give optimistic and pessimistic estimates, and show a second-quarter jobless rate ranging from 10.5 percent to 40.6 percent, with 27.3 million jobs lost at the lower bound and 66.8 million in the upper limit.
Fed analysts averaged the two, for a most likely outcome of 47.05 million people losing their jobs in the second quarter.
“Summing to the initial number of unemployed in February, this resulted in a total number of unemployed persons of 52.81 million. Given the assumption of a constant labor force, this resulted in an unemployment rate of 32.1 percent,” Fed economist Miguel Faria-e-Castro wrote.
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