The US economy contracted at an annual rate of 32.9% between April and June as the country grappled with lockdowns and spending cuts during the pandemic.
It was the deepest drop since the government began keeping records in 1947 and three times worse than the previous record of 10% set in 1958.
The reduction in spending on services like health care led to the fall.
Economists said they expected to see the biggest drop in the second quarter, with a recovery thereafter.
But as cases of the virus in the United States increase and some regions impose further restrictions on activity, the rebound is showing signs of stalling.
More than 1.4 million people filed new jobless claims last week, up slightly from the previous week for the second week in a row. Other data points to spending cuts and a drop in confidence in July.
Jerome Powell, the head of the US central bank, warned Wednesday of a further slowdown, calling the slowdown “the most serious of our lives”.
He urged the government to increase spending to help American households and businesses weather the crisis.
The call was echoed by other business leaders on Thursday as the figures shed light on the extent of the economic crisis facing the country.
“The staggering news of the historic decline in gross domestic product in the second quarter should shock us all,” said Neil Bradley, policy director at the US Chamber of Commerce, a business lobby group. “This shocking news should force Congress to act quickly. “
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The International Monetary Fund has predicted that global growth will fall 4.9% this year. Germany on Thursday reported a record quarterly decline of 10.1%, while the Mexican economy also reported a double-digit contraction.
Compared to the same quarter a year ago, the US economy contracted 9.5%. Both exports and imports are down more than 20% from a year ago, while consumer spending – the main driver of the U.S. economy – fell 10.7% year-on-year ‘other.
“No sign of returning to normal”
Anthony LoPorto, owner of a New York pub, has been serving drinks at his Bean Post establishment since 1994. He’s never known it so badly.
After waiting months to reopen, it is now struggling to fill its tables as people worried about the virus or loss of income stay at home. It’s a decline in trade that’s magnified in the United States – one reason the GDP numbers were so bad.
“It has been going on for months now and we were told that there would be an opportunity for us to start to return to some normalcy around this time – there is no sign of normalcy,” he says.
“I have a ‘don’t stop, don’t stop’ type attitude… but it gets to a point where I’m nervous and I have to be honest – I’m nervous even if I keep going to keep going, what’s going on? it happening with the neighborhood? ”
The more offices that close or keep staff at home, the more the custom of the Bean Post diminishes.
“I don’t believe in a quick rebound at all,” he said. “People haven’t been making money for a long time.
“There are nights when there’s no one around… There just isn’t enough money in people’s pockets and not enough desire in people’s minds. “
The United States has lost nearly 15 million jobs since February, despite heavy hiring in May and June. The US census estimates that more than half of American adults live in households that have seen their incomes decline since the pandemic.
Economists have warned that it will take years for the United States to recover from the devastation.
“Even when the economy rebounded rapidly in May and June, the economic shock from Covid-19 caused so much damage in previous months that the bottom line was an economic disaster for the second quarter,” wrote Josh Bivens , research director at the Institute for Economic Policy.
Congress is debating another economic relief plan, but it seems unlikely that it will reach a deal before a $ 600 emergency supplement to unemployment benefits expires this week, threatening another economic shock .
“The fact that initial jobless claims rose for a second week is worrying and underlines that the nascent consumer recovery is under threat,” said Madhavi Bokil, vice president of Moody’s Investors Service.