US economy expected to contract 38% in second quarter – CBO
Peter Wells in New York
The US economy is expected to contract nearly 38% in the second quarter from the same period last year, according to the latest analysis prepared for US lawmakers.
The body expects the pandemic to leave more than 25 million Americans unemployed by the end of September.
The economic blow will end the longest economic expansion in U.S. history and could be considered the most serious since the government began keeping quarterly records shortly after the end of the second war world.
The Congressional Budget Office expects the U.S. economy to contract 37.7% in the second quarter from the second quarter of 2019 and 11.2% from the end of March. The Bureau of Economic Analysis announced that the US economy contracted at an annualized rate of 4.8% in the first three months of the year, the largest decline since the financial crisis.
The CBO’s new forecast is slightly better than its April projection for the same period, down 12% quarter on quarter and contracting 40% annually. The quarterly growth rate is expected to increase by 5% in the third quarter, then increase by 2.5% in the last three months of the year.
The new CBO forecast incorporates economic forecasts from the stimulus packages promulgated by the federal government in March and April and “this legislation will partially mitigate the deterioration in economic conditions”.
“In particular, higher federal spending and lower revenues will lead to higher real GDP and employment in the coming years than they would otherwise be. The effects of the legislation on economic activity will be greater in the second and third quarters of 2020 and weaker thereafter, “said the CBO.
The number of unemployed should reach 25.1 million at the end of September, against 23.6 million at the end of June and 5.8 million at the end of 2019. In comparison, during the financial crisis, 7.9 million were unemployed between the end of 2007 and the end of 2009, said the CBO.
This equates to unemployment rates of 15.1% and 15.8% at the end of the quarters of June and September, respectively.