The U.S. economy suffered a historic collapse in the second quarter of this year, with Commerce Department figures showing gross domestic product (GDP) plummeting by 32.9 percent in annualized terms as business activity ground to a halt due to the pandemic.
The unprecedented economic contraction, which is an advance estimate released by the Commerce Department’s Bureau of Economic Analysis on July 30, is more than triple the previous all-time GDP drop of 10 percent in the second quarter of 1958.
“Markets were pretty much expecting a disastrous number, and they got it. The recovery is going to take time,” said Steven Ricchiuto, chief economist at Mizuho Securities USA.
Most of the drop in GDP took place in April, when business activity ground to a halt as the country was under lockdown to curb the spread of the CCP (Chinese Communist Party) virus, also known as the novel coronavirus.
Many businesses resumed operations in May, fueling hopes for a quick rebound. But a resurgence of cases, especially in the densely populated South and West, are tempering hopes for quick economic recovery.
“The bottom fell out of the economy in the second quarter,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “The outlook is not very good. Americans are not behaving well in terms of social distancing, the infection rate is unacceptably high, and that means economic growth cannot gain any traction.”
The Commerce Department said the second-quarter economic crash was driven by lockdowns sparked by the outbreak, adding that the dismal number likely doesn’t reflect the full impact of the pandemic response.
“The decline in second-quarter GDP reflected the response to COVID-19, as ‘stay-at-home’ orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses,” the department stated.
“This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending.”
The drop in GDP reflected decreases in personal consumption expenditures, exports, private inventory investment, and nonresidential and residential fixed investment, along with state and local government spending.
Adding to the economic gloom was a disappointing jobless claims report, also released July 30, which showed that initial weekly unemployment filings rose for the second straight week after steadily falling from its March peak of almost 7 million. For the week ending July 25, the number of Americans filing jobless claims was 1,434,000, an increase of 12,000 from the previous week, Labor Department figures show (pdf). By comparison, the pre-pandemic peak in new weekly jobless claims in America was 695,000, dating back to 1982.
A relative bright spot in the jobless numbers is the figure for continuing claims, which reflect people who earlier filed an initial claim and now continue to receive unemployment benefits. While the number of workers continuing to collect unemployment spiked by 867,000 during the week ending July 18, about a million workers went off unemployment the week before, so the net number of workers on continuing claims is lower over a two-week period.
“So, the net was still lower over the whole two week period in continuing claims than we thought, which implies to me that what we’re seeing in July data is more of an inflection point than a topping out in the economy, basically,” Ricchiuto said. “So, we’re not reaching an extreme, but we’ve basically inflected into a slower growth rate.”
Also, the total number of people collecting benefits in all unemployment programs for the week ending July 11 dropped by 1.6 million compared to the previous week.
“We all know that shutting down the economy was going to lead to a very, very sharp contraction in GDP. But there’s also evidence of a sharp rebound as well,” Ricchiuto noted.
Still, the July 30 economic data broadly reinforces the theme that the momentum of economic recovery has slowed, especially in places that have seen a surge in CCP virus infections.
The Federal Reserve on July 29 acknowledged that the spike in cases was likely stalling recovery, while pledging to support the economy as long as necessary, guaranteeing it will continue to flood the financial system with cheap funds and fueling a rally in Wall Street’s three main indexes late in the July 29 session.
Wall Street on July 30 had been trading largely flat, while the yield on the benchmark 10-year Treasury note dove to around 0.54 percent in the morning, marking the first time the benchmark rate has traded below the 0.55 threshold in more than three months. Falling Treasury note rates reflect a risk-off sentiment as investors seek safety amid uncertainty. The Wall Street fear gauge, or the VIX volatility index, spiked by more than 16 percent intraday and was up around 5.6 percent just after 1 p.m. ET on July 30.
The plunge in GDP and faltering recovery could put pressure on the White House and Congress to agree on a second stimulus package. Economists widely agree that without the historic fiscal package of nearly $3 trillion, the economic contraction would have been deeper.
Presumptive Democratic presidential nominee Joe Biden seized on the news to blame President Donald Trump for the economic slowdown and the loss of lives from the pandemic.
“The depth of economic devastation our nation is experiencing is not an act of God, it’s a failure of presidential leadership,” Biden said in a statement. “Had President Trump taken immediate and decisive action, tens of thousands of lives and millions of jobs would never have been lost.”
The Trump campaign was riding on great economic indicators before the outbreak in Wuhan of the CCP virus.
President Donald Trump’s reelection campaign responded to the economic report by noting that the figures cover the period from April to June, when the nation was hardest hit by the lockdowns related to the pandemic. The campaign noted that retail sales and consumer spending continue to rise.
“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,” Tim Murtaugh, Trump campaign communications director, said in a statement.
“The President’s policies already have the economy rebounding as the jobs reports from May and June show that an incredible 7.5 million jobs were created as lockdowns ended and businesses began reopening.”
Epoch Times reporter Ivan Pentchoukov and Reuters contributed to this report.