The U.S. economy suffered its sharpest downturn since at least the 1940s in the second quarter, highlighting how the pandemic has ravaged businesses across the country and left millions of Americans out of work.
Gross domestic product shrank 9.5% in the second quarter from the first, a drop that equals an annualized pace of 32.9%. That’s the steepest annualized decline in quarterly records dating back to 1947.
The figures show the extent of the economic devastation that resulted from the government-ordered shutdowns and stay-at-home orders – which abruptly brought a halt to the longest-running expansion. While employment, spending and production have improved since reopenings and federal stimulus reached Americans, a recent surge in infections has tempered the pace of the recovery.
Personal spending, which makes up about two-thirds of GDP, slumped an annualized 34.6%, also the most on record. Data shows “that the pace of the recovery looks like it has slowed since the cases began that spike in June,” Federal Reserve Chairman Jerome Powell said. He noted declining measures of debit- and credit-card spending, flattening hotel occupancy rates and fewer restaurant and salon visits. JPMorgan Chase & Co.’s tracker of credit- and debit-card transactions also showed that spending rose in May and early June before stalling.
The U.S. Census Bureau said in its latest weekly Household Pulse Survey that 51.1% of households experienced a loss of employment income in the week ended July 21, up from 48.3% four weeks ago.
The Labor Department’s latest figures on unemployment benefits suggested the jobs market is faltering. The number of workers applying for initial unemployment benefits rose for the second straight week to 1.43 million in the week ended July 25 – after nearly four months of decreases following a late-March peak. While the economic restart has helped put 7.5 million Americans back to work in May and June combined, payrolls are down more than 14.5 million from their pre-pandemic peak.
America’s failure to contain the virus indicates that the U.S. economy is likely to recover more slowly than places. The longer the pandemic lasts without a vaccine, the longer economic output will remain below pre-crisis levels, leaving permanent scars on many businesses and workers. According to Powell, the increase in virus cases and the renewed measures to control it, are starting to “weigh on economic activity.”