US economy suffers worst quarter since the second
world war as GDP shrinks by 32.9%
Drop in quarterly gross domestic product comes as 1.43
million people file for unemployment benefits, a second week of increases, amid
Covid-19 pandemic
Dominic
Rushe
@dominicru
Thu 30 Jul
2020 13.32 BSTLast modified on Thu 30 Jul 2020 15.33 BST
The US
economy shrank by an annual rate of 32.9% between April and June, its sharpest
contraction since the second world war, government figures revealed on
Thursday, as more signs emerged of the coronavirus pandemic’s heavy toll on the
country’s economy.
The
record-setting quarterly fall in economic growth compared to the same time last
year came as another 1.43 million Americans filed for unemployment benefits
last week, a second week of rises after a four-month decline.
The
annualized figure is the largest drop in quarterly gross domestic product (GDP)
– the broadest measure of the economy – since records began in 1945. Economists
expect the rate to improve sharply later this year but the outlook has been
clouded by the recent rise in infections across the US.
The news
came as Germany, Europe’s largest economy, also recorded a dramatic slump in
economic growth, contracting by 10.1% between April and June, the biggest
decline since 1970. The news triggered a sell off in US and European markets.
US GDP
shrank 8.4% in the worst quarter of 2008, the height of the last recession,
according to Credit Suisse. The previous record came in 1958 when economic
growth fell 10% during the Eisenhower recession.
The fall
came as large parts of the US economy shutdown in March in an attempt to halt
the spread of the coronavirus across the US. The closures led to a historic
number of layoffs and sent unemployment soaring to levels unseen since the
1930s Great Depression.
All states
have now begun to open up to some extent but the virus keeps spreading – more
than 150,000 people have now died of Covid-19. As cases rise in California,
Florida, Texas and elsewhere, some states have moved to restrict businesses
again to stop the spread, renewing pressure on the US economy.
“This is
something we have never seen before,” said Jason Reed, assistant chair of
finance at the University of Notre Dame. “At first I felt it was like a natural
disaster that had hit the entire country at the same time. Now it is evolving
into something worse than that.”
The rise in
unemployment comes as Congress is at loggerheads about how to implement a new
round of financial support for those who have lost their jobs in the shutdown.
The US initially pledged to pay people laid off by the pandemic an extra $600
in benefits a week but that extra payment expires on Friday and its replacement
has yet to be finalized. Some 20 million American’s qualified for the extra
payments and the payments now account for 15% of the entire nation’s wages.
The
deadlock is expected to cause chaos for unemployment offices already
overwhelmed by claims.
Lexie
Testa, 26, from Lansing, Michigan lost her hotel job at the end of May and
waited two months to receive her first unemployment payment. While her husband
has retained his job, she said it had been a struggle since her layoff and that
she was wary about finding new work as the virus continues to spread.
Testa said
it was too early to cut benefits given how hard it remains to find work and the
fact that the virus is still spreading. “I know a lot of people who aren’t
really comfortable returning to work with children in their home and actually I
have a few friends that cannot because they have no child care,” she said.
“I am lucky
enough that I have a grandmother who usually babysits for me but I just am not
really comfortable yet as I have always worked in the food service industry and
I see places in my city of Lansing shut down and reopen due to Covid cases
often.”
On
Wednesday, the Federal Reserve said the US economy faced major challenges from
the coronavirus pandemic and pledged to continue taking aggressive action to
support an eventual recovery.
“The path
of the economy will depend significantly on the course of the virus,” officials
said in a statement.
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