The Commerce Department’s initial estimate of U.S. gross
domestic product in the second quarter is the steepest drop in records dating
to 1947
The U.S. economy contracted at a record rate last quarter
and weekly jobless claims rose for the second straight week, amid signs of a
slowing recovery as the country continues to struggle with the coronavirus pandemic.
The Commerce Department said U.S. gross domestic product—the
value of all goods and services produced across the economy—fell at a 32.9%
annual rate in the second quarter, or a 9.5% drop compared with the same
quarter a year ago. Both figures were the steepest in records dating to 1947.
The contraction came as states imposed lockdowns across the
country to contain the coronavirus pandemic and then lifted restrictions. Many
economists think the economy resumed growth in the third quarter, which began
on July 1.
“The key caveat is that it will be a lot less better than we
were expecting a few months ago,” Ian Shepherdson, chief economist at Pantheon
Macroeconomics, said about the third quarter, citing the pickup in coronavirus
cases.
Separately, the Labor Department said applications for
weekly unemployment benefits rose by 12,000 to 1.43 million in the week ended
July 25, and the number of people receiving unemployment benefits increased by
867,000 to 17 million in the week ended July 18, signs the jobs recovery is
losing momentum.
The increased number of people receiving benefits, known as
continuing claims, had been declining in recent weeks. Jim O’Sullivan, a
strategist at TD Securities, said the reversal “could feed into fears that the
economy” is weakening again.
A surge in virus infections since mid-June appears to be
slowing the recovery in some states, according to some private-sector real-time
data.
JPMorgan Chase & Co.’s tracker of credit and debit-card
transactions, for instance, showed that spending rose in May and early June
before stalling and remaining broadly flat through last week. Data by Facteus,
which tracks transactions by 15 million debit and credit card holders, also
suggest restaurant spending was increasing in June and has largely flattened
since.
The U.S. Census Bureau said in its latest weekly Household
Pulse Survey that 51.1% of households experienced a loss of employment income
in the week ended July 21, up from 48.3% four weeks ago.
The decline in GDP in the second quarter reflected the deep
hit to consumer and business spending from lockdowns, social distancing and
other initiatives aimed at containing the virus. Consumer spending fell at a
34.6% annual rate, amid sharp decreases in services spending like health care
and lower spending on goods. Business spending on software, research and
development, equipment and structures fell at a 27% annual rate. Both exports
and imports plummeted.
States in May started reopening their economies—leading to
partial rebounds in jobs and spending—though a number of them have put fresh
restrictions in place because of the infection increase.
Matt Godden, chief executive of Seattle-based Centerline
Logistics, a marine-petroleum transportation operator, said he saw encouraging
signs in the shipping industry.
“Looking at July’s volumes, there’s some decent signs of
hope,” such as increased shipping traffic and some stabilization in energy
markets, he said. “Container customers may have over-cut,” he added, saying
some are now trying to increase shipping capacity.
Consumer spending, particularly on big-ticket items such as
homes, autos and other long-lasting purchases, increased in June. Employers
also added nearly 4.8 million jobs in the month, though the labor-market
recovery might be slowing as well.
On Wednesday, Boeing Co. said it would cut production of
commercial jets and shrink its workforce further. Companies including
Harley-Davidson Inc. and Microsoft Corp. -owned LinkedIn also announced job
cuts in July.
The number of daily U.S. coronavirus infections has shown
recent signs of leveling off amid recent restrictions, but the pandemic
continues to cast a cloud over the economy.
The Conference Board, a private research group, said Tuesday
that its index of consumer confidence sank to 92.6 in July from 98.3 in June,
as consumers became less optimistic about the short-term outlook for the
economy and labor market.
Nadia Montoya lost her job in late March as a pastry chef at
a Novato, Calif., restaurant because of the pandemic. She now has a part-time
job at an organic supermarket, and is making cakes and desserts at home for
friends and neighbors to help cover expenses.
“Things that were relatively normal for us—going on
vacation, camping, going out to eat with the kids—all that changed since we can’t
do that anymore, because they’re closed and we don’t have the money,” she said.
“It’s really hard at the moment.”
Businesses also cited continued uncertainty from the
pandemic.
“Overall, there’s a lot of chaos. People do not know for
sure whether their states are going to shut down tomorrow,” said John Flynn,
CEO of Fleet Advantage, a Fort Lauderdale, Fla.-based truck-leasing company.
“It’s going to be a tough year for everybody.”
“Everyone is very, very cautious,” said Mike Cavanagh, owner
of Key Code Media, an audiovisual company in Burbank, Calif., adding he has
business in the pipeline but senses his clients remain nervous about the
economy. “I guess the best way to put it is I’m muddling through.”
Congress has approved trillions of dollars in stimulus to
help U.S. households and businesses get through the pandemic, and another
package is now being negotiated on Capitol Hill. One key component—an extra
$600 in weekly jobless benefits—is due to expire at the end of July, but
lawmakers are still discussing whether and how to extend the aid.
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