WASHINGTON — The coronavirus pandemic sent the U.S. economy plunging by a record-shattering 32.9% annual rate last quarter and is still inflicting damage across the country, squeezing already struggling businesses and forcing a wave of layoffs that shows no sign of abating.
The economy's collapse in the April-June quarter, stunning in its speed and depth, came as a resurgence of the viral outbreak has pushed businesses to close for a second time in many areas. The government’s estimate of the second-quarter fall in the gross domestic product has no comparison since records began in 1947. The previous worst quarterly contraction — at 10%, less than a third of what was reported Thursday — occurred in 1958 during the Eisenhower administration.
So steep was the economic fall last quarter that most analysts expect a sharp rebound for the current July-September period. But with coronavirus cases rising in the majority of states and the Republican Senate proposing to scale back aid to the unemployed, the pain is likely to continue and potentially worsen in the months ahead.
The plunge in GDP “underscores the unprecedented hit to the economy from the pandemic,” said Andrew Hunter, senior U.S. economist at Capital Economics. “We expect it will take years for that damage to be fully recovered.”
That's because the virus has taken square aim at the engine of the American economy — consumer spending, which accounts for about 70% of activity.
Tentative hopes for a swift recovery have been diminished by a resurgence of viral cases in the South and the West that has forced many businesses to close again or reduce occupancy. Between June 21 and July 19, for example, the proportion of Texas bars that were closed shot from 25% to 73%.
The second surge does appear to be leveling off, but cases are still rising in close to 30 states, with the outbreak’s center of gravity seemingly now shifting toward the Midwest.
Many states have imposed restrictions on visitors from the states that have reported high levels of cases, hurting hotels, airlines and other industries that depend on travel.
That has led to mammoth job losses. In a sign of how weakened the job market remains, more than 1.4 million laid-off Americans applied for unemployment benefits last week. It was the 19th straight week that more than 1 million people have applied for jobless aid. Before the coronavirus erupted in March in the United States, the number of Americans seeking unemployment checks had never exceeded 700,000 in any one week.
An additional 830,000 people applied for unemployment benefits under a new program that extends eligibility for the first time to self-employed and gig workers. All told, the government says roughly 30 million people are receiving some form of jobless aid.
The pain could soon intensify further: A supplemental $600 in weekly federal unemployment benefits is expiring, and Congress is squabbling about extending the aid, which will probably be done at some reduced level of payment.
“The risk of temporary job losses becoming permanent is high from repeated closures of businesses," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
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