Business

U.S. economy shrank at fastest pace on record last quarter

The U.S. economy contracted at its steepest pace since the Great Depression in the second quarter, as the COVID-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new coronavirus cases.

Plunge was largest on record dating back to 1947

A worker's temperature is scanned before a shift at a California factory last month. The coronavirus that causes COVID-19 has waylaid the world's largest economy. (Stephen Lam/Reuters)

The U.S. economy contracted at its steepest pace since the Great Depression in the second quarter, as the COVID-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new cases of coronavirus.

Gross domestic product collapsed at a 32.9 per cent annualized rate last quarter, the deepest decline in output since the government started keeping records in 1947, the Commerce Department said on Thursday.

The drop in GDP was more than triple the previous all-time decline of 10 per cent in the second quarter of 1958. The economy contracted at a five per cent pace in the first quarter.

Economists polled by Reuters had forecast GDP plunging at a 34.1 per cent rate in the April-June quarter.

The bulk of the historic tumble in GDP occurred in April, when activity ground to an abrupt halt after restaurants, bars and factories, among others, were shuttered in mid-March to slow the spread of the coronavirus.

Though activity picked up starting in May, momentum has slowed amid a resurgence in new cases of the illness, especially in the densely populated South and West regions, where authorities in hard-hit areas are closing businesses again or pausing reopenings. That has tempered hopes of a sharp rebound in growth in the third quarter.

"After the worst quarter on record, the economy is still wrestling with the misery and uncertainty caused by the coronavirus," BMO economist Sal Guatieri said of the numbers. "While the recovery is underway, it will take a long time before the economy recovers."

Federal Reserve Chair Jerome Powell on Wednesday acknowledged the slowdown in activity. The U.S. central bank kept interest rates near zero and pledged to continue pumping money into the economy.

"The bottom fell out of the economy in the second quarter," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. "The outlook is not very good. Americans are not behaving well in terms of social distancing, the infection rate is unacceptably high and that means economic growth cannot gain any traction."

The plunge in GDP and a faltering recovery could put pressure on the White House and Congress to agree on a second stimulus package.

President Donald Trump, whose opinion poll numbers have tanked as he struggles to manage the pandemic, economic crisis and protests over racial injustice three months before the Nov. 3 election, said on Wednesday he was in no hurry.

Economists say without the historic fiscal package of nearly $3 trillion US, the economic contraction would have been deeper. The package offered companies help in paying wages and gave millions of unemployed Americans a weekly $600 supplement, which expires on Saturday. Many companies have exhausted their loans.

This, together with the sky-rocketing coronavirus infections, is keeping layoffs elevated. In a separate report on Thursday, the Labour Department said initial claims for unemployment benefits totalled 1.434 million in the week ending July 25.

With files from CBC News

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