America’s economy suffered a historic collapse in the second quarter of this year, with Commerce Department figures showing Gross Domestic Product plummeting by 32.9 percent in annualized terms as business activity ground to a halt due to the pandemic.
The unprecedented economic contraction is an “advance” estimate released by the Commerce Department’s Bureau of Economic Analysis on Thursday, subject to a revision in the subsequent release, due to be published on Aug. 27. Thursday’s release also confirmed that first-quarter GDP fell by 5 percent, unchanged from the previously published preliminary estimate. The drop in GDP was more than triple the previous all-time decline of 10 percent in the second quarter of 1958.
“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 in a note that the economic crash was driven by lockdowns sparked by the outbreak of COVID-19, adding that the dismal number likely does not 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 said, adding, “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 (PCE), exports, private inventory investment, 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 Thursday, 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).
The jobless claims number adds to signs that the momentum of economic recovery has slowed, especially in southern and western states, which have seen a surge in COVID-19 infections.
The Federal Reserve on Wednesday 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 yesterday’s session.
On Thursday, Wall Street’s main indexes were set to open lower after data confirmed the economy suffered its steepest contraction since the Great Depression in the second quarter, adding to gloom from job losses and a resurgence in cases of COVID-19.
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.
Reuters contributed to this report.