Thursday 30 July 2020 2:35 pm

US economy shrinks by record 33 per cent amid coronavirus pandemic

The US economy suffered its biggest crash on record in the second quarter as coronavirus ripped through the country, with GDP plunging at an annualised rate of 32.9 per cent according to an advance estimate.

The drop in output – which came after a fall of five per cent in the first quarter – was the steepest since the government started keeping track in 1947. It was also more than triple the previous record decline seen in 1958.

Read more: US jobless claims rise again to 1.43m as total number of claimants tops 30m

Quarter on quarter, GDP shrunk by 9.5 per cent in the three months to the end of June.

Most of the US economy was shut down in April as states tried to stem the coronavirus outbreak. It was an unprecedented government intervention in the economy which caused businesses to close and consumer spending to dry up.

“Unusually for an economic downturn, the fall in GDP was driven mainly by a 34.6 per cent plunge in consumption as the lockdowns in late March and April forced many consumers to stay at home,” said Andrew Hunter, senior US economist at Capital Economics.

Now, the US’s nascent economic recovery is threatened once again by rising coronavirus cases. There were 68,460 cases yesterday, according to a New York Times tally. Some states have again tightened restrictions.

Data out today also showed new US jobless claims rose for the second week in a row. More than 1.4m people filed for benefits last week, the Department said.

Investors hope for stimulus for US economy

Federal Reserve chair Jay Powell yesterday warned that data was “pointing to a slowing in the pace of the recovery”. He said there had been pullback by consumers and a slowdown in firms taking back furloughed workers.

Investors are hoping that Congress will soon strike a deal over another round of stimulus. Edward Moya, senior market analyst at currency firm Oanda, said there is an “impasse over the fiscal virus relief bill”. 

But he said: “Labor market pressures should force lawmakers to get their act together.”

Read more: US economy: Demand hit by new coronavirus lockdowns

The figures showed gross private domestic investment shrunk by an annualised 49 per cent in the second quarter. Exports dropped by 64 per cent and imports fell by 53 per cent.

Richard Flynn, UK managing director at Charles Schwab, said: “Even if rising coronavirus cases don’t lead to renewed shutdowns, a prolonged slowdown in the recovery should be expected.” He said there will likely be “weaker demand and constrained supply”.