Numbers: The economy, which was severely short of coronavirus, contracted at a record annual rate of 32.9% in the second quarter, highlighting the huge hole in the U.S. as it tries to recover from the deepest recession in American history.
The wave of damage caused during the first global pandemic was almost as bad as Wall Street expected. Analysts surveyed by MarketWatch predicted a 35% drop in gross domestic product, the official US economic scoreboard.
The economy began to recover in mid-May after a sharp contraction at the beginning of the quarter, but the U.S. has a long way to go, analysts say. Millions of Americans are still out of work, thousands of businesses have closed, and many of those that have remained open have had to cut operations due to too little demand or ongoing government restrictions.
The recent increase in coronavirus cases in about half of the U.S. states, especially in large ones such as Texas, Florida, and California, has also shown a fragile economic recovery.
Read:July. Consumer confidence has declined and indicates a sharper economic recovery
In the past, GDP has never fallen by more than 10% a year than in a single quarter as the government began to follow shortly after World War II.
What happened: Consumer spending, the main driver of the economy, fell by a record 34.6% in the spring.
Services – travel, tourism, medical care, meals and similar services – fell particularly sharply. Large customer groups and a large influx of store-owned businesses have faced a huge problem of government closure in the event of a pandemic. Expenditure on services at 43.5% per year.
Households also released far fewer goods, although the downturn was not so sharp. Purchases decreased by 11.3 percent. Americans bought more cars, groceries, and certain other household items while doing a lot of work at home, but sales of clothing, gasoline, and many other goods fell sharply.
Read:Unemployment claims are rising in the second week as the U.S. economy slows
Business investment also stumbled sharply as companies froze or cut costs. Expenditure on infrastructure, such as oil rigs, fell by 35% and expenditure on equipment fell by 37.7%. Both are record declines.
Investment in new housing also declined by 38.7%, but appears to be growing rapidly. Record low mortgage rates led to the sale of new homes and prompted builders to begin construction by the end of the quarter.
The level of inventories also declined in the second quarter due to an annual rate of $ 234.6 billion, compared to a decline of $ 80 billion in the first quarter.
The companies reduced production due to lower sales and lower exports. It has also had a major impact on the economy, although production has increased in the last few months after the economy has substantially recovered.
Government spending was mixed. The federal government has been involved in a massive infusion of aid to businesses, households, and the unemployed, but the state and locals have experienced significant declines in tax revenues even as spending has increased.
Total government spending rose 2.7% in the spring. Federal spending jumped more than 17 percent, offsetting a 5.6 percent cut in state and local spending.
International trade has been a lesser barrier to the economy. In the second quarter, exports fell by 64% and imports by 53%. Coronavir severely disrupted global trade flows, and demand was much lower due to the global economic downturn.
Read:The U.S. commodity deficit shrinks by 6% as exports recover, but the overall picture is still ugly
Economists say it could take months, if not years, for trade to fully recover, especially with the U.S. and China, which are still debating many issues. The economies of the two countries are the largest in the world.
Meanwhile, inflation fell 1.9% in the second quarter, rising after the start of the year. The price of many goods and services has fallen as companies have cut prices to reduce sales. Inflation is likely to remain low until the pandemic resolves.
Looking at the first quarter, GDP was initially reported to have contracted by 5%, unchanged. The pandemic in early March hit a huge hole in the economy in the last month of the quarter.
Big photo: The economy tends to expand in the third quarter, but the influx of coronavir cases in many U.S. states has already taken some air off the recovery. Economists surveyed by MarketWatch forecast GDP growth of 18% a year from July to September, although estimates are likely to be lowered.
The road to recovery depends heavily on whether Congress passes another huge aid package, economists say, and whether the pandemic is back under control. Long-term uncertainty will only force Americans to save more and spend less, thus damaging the economy.
What do they say ?: “The virus is the boss,” said corporate economist Robert Frick of the Federal Naval Credit Union. “The longer it lasts, the greater the damage.”
Market reaction: Dow Jones industry average DJIA,
and the S&P 500 Index SPX,
were opened lower in Thursday’s deals. Shares have been trading on a narrow range for the past few weeks.