The US economy suffered its most severe contraction in more than a decade in the first quarter of the year, as the country introduced locks to slow the spread of the coronavirus.
The world’s largest economy fell at an annual rate of 4.8%, according to official figures released Wednesday.
It marked the first contraction since 2014, ending a record expansion.
But the numbers just hint at the complete crisis, as many restrictions were only put in place in March.
The pandemic “is causing enormous human and economic hardship in the United States and around the world,” policy makers at the US central bank said on Wednesday.
The United States has attempted to cushion the economic blow with nearly $ 3 billion (£ 2.4 billion) in new spending, including direct payments to many families. The Federal Reserve has also taken a series of emergency measures, including lowering interest rates to almost zero.
Federal Reserve Chairman Jerome Powell said on Wednesday that the bank would maintain these levels until it is “convinced that the economy has survived recent events and is on the right track.” But he warned that the current crisis would “weigh heavily” on the economy.
“Will there be more to be done?” I would say the answer will be yes, “said Powell at a virtual press conference.
Since mid-March, more than 26 million people in the United States have applied for unemployment, and the United States has experienced a historic decline in business activity and consumer confidence. Forecasters expect growth to contract by 30% or more in the quarter ending in June.
“This is off the beaten track, unprecedented,” said Mark Zandi, chief economist at Moody’s Analytics. “The economy has just been flattened. “
The contraction in the US economy is part of a global downturn following the coronavirus pandemic.
In China, where restrictions were in place for most of the quarter, the economy contracted 6.8% – its first quarterly contraction since the start of record keeping in 1992.
And on Wednesday, Germany said its economy could contract a record 6.3% this year.
“We will experience the worst recession in the history of the federal republic” founded in 1949, said Minister of Economy Peter Altmaier.
Hit by consumers
Before the coronavirus deflects the global economy, the US economy is expected to grow by about 2% this year.
But by mid-April, more than 95% of the country was in some form of foreclosure. Although some states have started to remove orders, they remain in place in many others, including major economic engines such as New York and California.
Many companies have warned of major pandemic-related blows as they share their quarterly results with investors.
General Electric said its revenues fell 8% in the first quarter on Tuesday, while Boeing – already in crisis after the fatal crashes of its 737 Max aircraft – announced a 48% drop in revenues, and said that ‘he planned to cut production and cut jobs.
“The Covid-19 pandemic is affecting all aspects of our business, including customer demand from airlines, production continuity and supply chain stability,” said general manager Dave Calhoun.
The Commerce Department said consumer spending – which accounts for about two-thirds of the US economy – fell 7.6% in the first three months of the year.
Spending on food and lodging fell by more than 70%, while purchases of clothing and shoes fell by more than 40%.
Healthcare spending also fell – despite the virus – as concerns over the infection prompted doctors to postpone routine treatment and other medical care.
Economic pain in the United States is expected to be even more severe in the April-June period, but economists say even the estimate for the first quarter should be revised downward as the government receives more data.
“It is very difficult to measure the depth of the decline,” said Zandi. “We will not really know the extent of the economic damage for years. “