The United States economy by far had its worst quarterly crash in history. It contracted at a dizzying 32.9% annual rate in the April-June quarter, when the coronavirus pandemic led to the closure of businesses, causing tens of millions of people to lose their jobs and unemployment to skyrocket. 14.7%, the US government reported yesterday.
The Commerce Department’s estimate of the second quarter decline in gross domestic product (GDP), the total monetary value of goods and services, represents the worst decline recorded since 1947. The strongest previous quarterly contraction, of 10%, occurred in 1958 during the government of Dwight D. Eisenhower.
The most recent slump is recorded after a 5% drop in the January-March quarter, a period during which the economy officially entered a recession triggered by the virus, ending an 11-year economic expansion, the most prolonged registration in the United States.
The contraction in the spring was caused by a marked containment in consumer spending, which is equivalent to about 70% of the country’s economic activity. Consumer spending collapsed at an annual rate of 34.6% once travel stopped almost entirely and closing orders forced many restaurants, bars, entertainment centers and other retail businesses to stop their activities.
The collapse in GDP “highlights the unprecedented blow to the economy caused by the pandemic,” said Andrew Hunter, a senior economist at Capital Economics for the United States. “We believe it will take years to fully recover from that damage.”
The economic downturn last quarter was so rapid that most analysts expect the economy to post a strong recovery in the current July-September period, perhaps as much as 17% or more annually. Still, given a rise in the rate of confirmed coronavirus cases in most states and pressure to postpone reopening of businesses and the Republican-majority Senate proposal to cut economic aid for unemployment provided by the government, the economy could worsen in the coming months.
Last quarter, apart from a drop in consumer spending, business investment and the real estate sector also declined sharply, with contractions of 27% and 38.7%, respectively.
The labor market, the most important pillar of the economy, was severely affected. Tens of millions of jobs disappeared amid the recession. More than a million people fired have applied for unemployment financial aid for 19 consecutive weeks. So far, about a third of lost jobs have been recreated, but the COVID-19 rally is likely to slow down the recovery in the labor market.
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