US economy drops 32.9% in 2nd quarter of 2020


Belmont Lay | August 01, 2020, 01:38 AM

Gross domestic product in the United States shrank at an annual rate of 32.9 per cent in the second quarter of 2020, the Commerce Department reported on July 30.

The sharpest economic contraction in modern American history was triggered by the Covid-19 pandemic.

This 32.9 per cent decline followed a 5 per cent contraction in the first quarter of 2020.

The coronavirus has killed more than 150,000 people in the U.S. as businesses shut and economic activity ground to a halt to curb the spread.

Historic shock

The 32.9 per cent decline in GDP has no historic precedence in the U.S., the Wall Street Journal noted.

The economic shock in April, May and June was more than three times as sharp as the previous record of 10 per cent in 1958.

Shockingly, it was nearly four times the worst quarter during the Great Recession during 2007 to 2009.

Another 1.43 million people filed for state unemployment in the last week of July, an increase of 12,000, the Labor Department also reported on July 30.

It was the second week in a row of increased unemployment filings.

What did the last four months of economic activity look like?

However, the assumption that the 32.9 per cent shrinkage is the annual rate is misleading as this Covid-19 pandemic period is highly volatile.

The overall economy in the second quarter this year was 9.5 per cent smaller than during the same period a year ago.

After a sharp drop in March and April, economic activity began to rebound in May and June.

But this recovery remains halting and could be reversed due to a new surge of infections, as the virus is starting to take off again in key states such as Texas, California, Arizona, and Florida.

Help on hand

The unemployment rate approached 15 per cent in April.

In June it was 11.1 per cent -- a rate that was higher than during any previous postwar recession.

While the drop in GDP was largely driven by a decline in consumer spending, the economic fallout was cushioned somewhat by an unprecedented level of federal relief.

Wages and salaries fell sharply in April, but that was more than offset by the US$1,200 relief payments that the government sent to most adults and by supplemental unemployment benefits of US$600 per week.

Consumer spending is the lifeblood of the U.S. economy, as people are able to buy groceries and pay rent.

Those extra unemployment benefits are expiring end-July, though, but additional federal support is likely to be necessary with coronavirus infections still threatening the recovery.

But going back to pre-pandemic levels of economic activity will be impossible until some time in 2022, some analysts have predicted.

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