America\u2019s economy suffered a historic collapse in the second quarter of this year, with Commerce Department figures showing Gross Domestic Product (GDP) plummeting by 32.\u2026<\/b>
\nAmerica\u2019s economy suffered a historic collapse in the second quarter of this year, with Commerce Department figures showing Gross Domestic Product (GDP) plummeting by 32.9 percent in annualized terms as business activity ground to a halt due to the pandemic.
The unprecedented economic contraction, which is an advance estimate released by the Commerce Department\u2019s Bureau of Economic Analysis on Thursday, is more than triple the previous all-time GDP drop of 10 percent in the second quarter of 1958.
\u201cMarkets were pretty much expecting a disastrous number, and they got it. The recovery is going to take time,\u201d said Mizuho Securities USA chief economist, Steven Ricchiuto. [remove]
Most of the drop in GDP took place in April, when business activity ground to a halt as the country was under lockdown to curb the spread of COVID-19.
Many businesses resumed operations in May, fueling hopes for a quick rebound. But a resurgence of COVID-19 cases, especially in the densely populated south and west, are tempering hopes for quick economic recovery.
\u201cThe bottom fell out of the economy in the second quarter,\u201d said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. \u201cThe outlook is not very good. Americans are not behaving well in terms of social distancing, the infection rate is unacceptably high and that means economic growth cannot gain any traction.\u201d
The Commerce Department said the second-quarter economic crash was driven by lockdowns sparked by the outbreak of COVID-19, adding that the dismal number likely does not reflect the full impact of the pandemic response.
\u201cThe decline in second quarter GDP reflected the response to COVID-19, as \u2018stay-at-home\u2019 orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses,\u201d the department said, adding, \u201cThis led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending.\u201d
The drop in GDP reflected decreases in personal consumption expenditures, exports, private inventory investment, and nonresidential and residential fixed investment, along with state and local government spending.
Adding to the economic gloom was a disappointing jobless claims report, also released Thursday, which showed that initial weekly unemployment filings rose for the second straight week after steadily falling from its March peak of almost 7 million. For the week ending July 25, the number of Americans filing jobless claims was 1,434,000, an increase of 12,000 from the previous week, Labor Department figures show (pdf). By comparison, the pre-pandemic peak in new weekly jobless claims in America was 695,000, dating back to 1982.
A relative bright spot in the jobless numbers is the figure for continuing claims, which reflect people who earlier filed an initial claim and now continue to receive unemployment benefits. While the number of workers continuing to collect unemployment spiked by 867,000 during the week ending July 18, about a million workers went off unemployment the week before, so the net number of workers on continuing claims is lower over a two-week period.
\u201cSo, the net was still lower over the whole two week period in continuing claims than we thought, which implies to me that what we\u2019re seeing in July data is more of an inflection point than a topping out in the economy, basically,\u201d Ricchiuto said. \u201cSo, we\u2019re not reaching an extreme, but we\u2019ve basically inflected into a slower growth rate.\u201d
Also, the total number of people collecting benefits in all unemployment programs for the week ending July 11 dropped by 1.6 million compared to the previous week.
\u201cWe all know that shutting down the economy was going to lead to a very, very sharp contraction in GDP. But there\u2019s also evidence of a sharp rebound as well,\u201d Ricchiuto noted.
Still, Thursday\u2019s economic data broadly reinforces the theme that the momentum of economic recovery has slowed, especially in places that have seen a surge in COVID-19 infections.
The Federal Reserve on Wednesday acknowledged that the spike in cases was likely stalling recovery, while pledging to support the economy as long as necessary, guaranteeing it will continue to flood the financial system with cheap funds and fueling a rally in Wall Street\u2019s three main indexes late in Wednesday\u2019s session.
Wall Street on Thursday has been trading largely flat, while the yield on the benchmark 10-year Treasury note dove to around 0.54 percent in the morning, marking the first time the benchmark rate has traded below the 0.55 threshold in over three months. Falling Treasury note rates reflect a risk-off sentiment as investors seek safety amid uncertainty. The Wall Street fear gauge, or the VIX volatility index, spiked by over 16 percent intraday and was up around 5.6 percent just after 1 p.m. ET on July 30.
The plunge in GDP and faltering recovery could put pressure on the White House and Congress to agree on a second stimulus package. Economists widely agree that without the historic fiscal package of nearly $3 trillion, the economic contraction would have been deeper.
Presumptive Democratic presidential nominee Joe Biden seized on the news to blame President Donald Trump for the economic slowdown and the loss of lives from the pandemic.
\u201cThe depth of economic devastation our nation is experiencing is not an act of God, it\u2019s a failure of presidential leadership,\u201d Biden said in a statement. \u201cHad President Trump taken immediate and decisive action, tens of thousands of lives and millions of jobs would never have been lost.\u201d
The Trump campaign was riding on great economic indicators before the outbreak in Wuhan of Chinese Communist Party (CCP) virus, also known as the novel coronavirus.
President Donald Trump\u2019s re-election campaign responded to the economic report by pointing out that the figures cover the period from April to June, when the nation was hardest hit by the lockdowns related to the pandemic. The campaign noted that retail sales and consumer spending continue to rise.
\u201cThe media is also grabbing onto the annualized number which supposes that the economic conditions will remain the same for an entire year, which it undoubtedly will not,\u201d Tim Murtaugh, Trump campaign communications director, said in a statement. \u201cThe President\u2019s policies already have the economy rebounding as the jobs reports from May and June show that an incredible 7.5 million jobs were created as lockdowns ended and businesses began reopening.\u201d<\/p>\n