The longest economic expansion in U.S. history came to a shuddering halt in the first quarter as the coronavirus pandemic sent GDP tumbling into negative territory — with economists expecting far worse to come.
The Commerce Department reported Wednesday that gross domestic product contracted 4.8% in the January-March period, the first decline since the 1.1% drop in the first quarter of 2014 and the worst quarterly contraction since the Great Recession.
Since most of the coronavirus lockdowns that have brought the economy to a virtual standstill only began in the second half of March, economists are now bracing for a second-quarter plunge of Great Depression proportions.
“If the economy fell this hard in the first quarter, with less than a month of pandemic lockdown for most states, don’t ask how far it will crater in the second quarter because it is going to be a complete disaster,” Chris Rupkey, chief economist at MUFG in New York, told Reuters.
Before the virus crisis, the U.S. had been growing at a steady 2% pace during what had become the longest expansion in history. Economists noted that Wednesday’s GDP reading was the first of three, with Goldman Sachs forecasting an ultimate contraction of 8.25% once more data has been collected.
“We believe economic reality during the quarter was even worse,” Goldman economist Spencer Hill said in a note.
As CNBC reports, the first-quarter GDP numbers “provide the first detailed glimpse into the deep damage the coronavirus wreaked on the U.S. economy” as the pandemic forced companies to lay off millions of people and retailers to close their stores.
Consumer spending, the main driver of the economic expansion, fell at a 7.6% annual pace, the largest retreat since 1980, and health-care spending declined a sharp 2.3% despite the pandemic.
“Hospitals have canceled or delayed many elective procedures and patients have stayed away for fear of contracting the virus,” MarketWatch noted.
The housing industry was one of the few bright spots, with investment surging 21% as low mortgage rates encouraged construction companies to build more houses to meet rising demand. “The surge is all but certain to fizzle out in the second quarter, however,” according to MarketWatch.