US GDP Experiences Worst Drops on Record Due to Pandemic Lockdowns
Story Code : 877736
Business ground to a halt during the pandemic lockdown in the spring of this year, and America plunged into its first recession in 11 years, putting an end to the longest economic expansion in US history and wiping out five years of economic gains in just a few months, CNN reported.
A recession is commonly defined as two consecutive quarters of declining gross domestic product — the broadest measure of the economy. Between January and March, GDP declined by an annualized rate of 5%.
But this is no ordinary recession. The combination of public health and economic crises is unprecedented, and numbers cannot fully convey the hardships millions of Americans are facing.
In April, more than 20 million American jobs vanished as businesses closed and most of the country was under stay-at-home orders. It was the biggest drop in jobs since record-keeping began more than 80 years ago. Claims for unemployment benefits skyrocketed and have still not recovered to pre-pandemic levels.
While the labor market has been rebounding since states began to reopen, bringing millions back to work, the country is still down nearly 15 million jobs since February. Next week's July jobs report is expected to show another 2.3 million jobs added. That would bring the unemployment rate down to 10.3% — still higher than during the worst period of the financial crisis.
Before the pandemic, the worst GDP drop on record was in the first quarter of 1958, when GDP fell 10.0 percent on an annualized basis. The economic shock in April, May, and June was roughly four times as sharp as the worst quarterly decline during the Great Recession.
According to the BEA, economic activity contracted by 5.0 percent in the first quarter of 2020, which captured only the start of the coronavirus pandemic and business shutdowns in March.
“The decline in second-quarter GDP reflected the response to COVID-19, as ‘stay-at-home’ 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,” the BEA said.
“This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending.”
The bureau added that “The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the second quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.”
The report shows sharp contractions in personal consumption, exports, inventories, investment, and spending by state and local governments. Personal consumption, which historically has accounted for about two-thirds of all activity in the United States, subtracted 25 percent from the Q2 total, with services accounting for nearly all of that drop.
The report “just highlights how deep and dark the hole is that the economy cratered into in Q2,” said Mark Zandi, chief economist at Moody’s Analytics, as quoted by CNBC. “It’s a very deep and dark hole and we’re coming out of it, but it’ going to take a long time to get out,” he said.
Also on Thursday, the government reported that another 1.43 million Americans filed for state unemployment last week, an increase of 12,000. Although roughly in line with expectations, it was the second week in a row of increased unemployment filings.