The U.S. economy contracted at a record rate in the second quarter, underscoring the drastic impact of the coronavirus pandemic and suggesting a long road to recovery.
The Commerce Department reported Thursday that gross domestic product from April to June plunged 32.9% on an annualized basis, reflecting, in part, sharp decreases in consumer spending on services like health care, recreation, and food.
Economists had predicted a 34.7% slide but it was still the steepest quarterly decline in records dating back to 1947 and more than three times the 10% drop in the first quarter of 1958.
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. “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.”
The easing of stay-at-home restrictions during the quarter had raised hopes that the economy would resume growth but as The Wall Street Journal reports, “the gains weren’t enough to offset the steep drop in output when swaths of the U.S. were closed.”
“The ball is going to bounce less high than it should” in the third quarter, said James Sweeney, chief economist for Credit Suisse. With new virus outbreaks around the country, he added, “we know there is an incremental slowing down of economic activity.”
Federal Reserve Chairman Jerome Powell said Wednesday that “the pace of the recovery looks like it has slowed since the cases began that spike in June,” citing declining measures of debit- and credit-card spending, flattening hotel occupancy rates and fewer restaurant and salon visits.
According to CNBC, “Sharp contractions in personal consumption, exports, inventories, investment and spending by state and local governments converged to bring down GDP” in the second quarter.
Consumer spending fell at a 34.6% annual rate while business investment also stumbled badly as companies froze or slashed spending, with outlays on infrastructure such as oil rigs sinking a record 35% and spending on equipment falling a record 37.7%.
“The virus is the boss,” said corporate economist Robert Frick of Navy Federal Credit Union. “The longer this goes on, the deeper the damage.”
Allen J. Schaben / Los Angeles Times via Getty Images