(CN) — The U.S. economy shrank at a record 32.9% annual rate in the second quarter of the year, an astonishing plunge triggered by the coronavirus pandemic that has been ravaging the economy for nearly six months.
The sharp decrease in the gross domestic product, a primary indicator of economic health that measures output of goods and services, is by far the worst drop ever recorded since the government began keeping track in 1947.
It was largely caused by a big decline in consumer spending, which drives about 70% of economic activity, as well as drops in exports, investments and state and local government spending, according to a Commerce Department report released Thursday.
The government also reported Thursday that the unemployment rate stands at 11.6% after 1.2 million more Americans filed new claims for jobless benefits last week.
Andrew Hunter, senior U.S. economist at Capital Economics, said the massive decline in GDP “underscores the unprecedented hit to the economy from the pandemic.”
“We expect it will take years for that damage to be fully reversed,” he said.
The record-breaking drop in the second quarter follows a 5% decline in the first quarter. Whereas consumer spending fell about 8% from January to March, it plunged 34.6% from April to June as lockdown orders kept Americans at home and forced many restaurants, bars and other businesses to close.
Business investment spending fell 27% in the second quarter while state and local government spending dropped 5.2%. Overall government spending was up 2.7%, however, as the federal government spent trillions on a stimulus plan that sent $1,200 checks to most Americans and hundreds of billions of dollars to small businesses and large companies.
Joel Naroff of Naroff Economic Advisors said the record-setting economic decline in the second quarter was expected but still “breathtakingly bad.”
“Congress and the president have to face the music and start dealing with the virus,” he wrote. “Otherwise, this welfare economy will be with us for a lot longer than anyone wants to see and the long-term negative impacts will be massive.”
The recession triggered by the Covid-19 pandemic abruptly ended an 11-year economic growth streak in March. Federal Reserve Chairman Jerome Powell said Wednesday the central bank intends to keep interest rates near zero for the foreseeable future as the economy weathers the coronavirus storm.
“We think that the economy will need highly accommodative monetary policy and the use of our tools for an extensive period,” Powell said. “We’re in this until we’re well through it.”
The previous record quarterly decline in GDP was set in 1958, during the Eisenhower administration, when it fell by 10%.
Many experts have predicted a strong GDP recovery in the third quarter, but the economic outlook is uncertain with virus cases on the rise across the country. More than 20 million jobs were lost in March and April when the pandemic first brought the U.S. to its knees.
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