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Food banks have seen an increase in demand.
The US economy contracted an annual rate of 32.9% in the April-June quarter as the country grappled with spending cuts during the pandemic.
It was the deepest decline since the government began keeping records in 1947 and three times more severe than the previous record of 10% set in 1958.
The reduction in spending on services such as health care drove the decline.
Economists have said they expected to see the biggest drop in the second quarter, with a subsequent recovery.
But as virus cases increase in the US and some areas re-impose restrictions on activity, the rebound shows signs of stagnation.
More than 1.4 million people filed new unemployment claims last week, slightly more than the week before for the second week in a row. Other data points to spending cuts and confidence falls in July.
Job losses
Jerome Powell, the head of the United States central bank, warned of a further slowdown on Wednesday, describing the slowdown as “the most severe in our lives.”
He called for increased government spending to help American households and businesses overcome the crisis.
That call was echoed by other business leaders on Thursday when the figures highlighted the magnitude of the economic crisis facing the country.
“The staggering news of the historic decline in gross domestic product in the second quarter should surprise us all,” said Neil Bradley, director of policy for the United States Chamber of Commerce, a business lobby group. “This discordant news should compel Congress to move quickly.”
- The Fed warns of the continued need to protect the US economy.
- The German economy suffers the biggest decline on record
The International Monetary Fund has forecast that global growth will fall 4.9% this year. On Thursday, Germany reported a record quarterly decline of 10.1%, while Mexico’s economy also reported a double-digit contraction.
Compared to the same quarter last year, the US economy contracted 9.5%. Exports and imports fell more than 20% from the previous year, while consumer spending, the main driver of the US economy, fell 10.7% year-on-year.
Empty pockets
It has lost nearly 15 million jobs since February, despite strong hiring in May and June. The US Census estimates that more than half of American adults live in households that have seen their incomes cut since the pandemic.
Economists warned that it will take years for the United States to recover from the devastation.
“Even as the economy rebounded rapidly in May and June, the Covid-19 economic shock inflicted so much damage in the previous months that the net result was an economic catastrophe for the second quarter,” wrote Josh Bivens, director of research at Institute of Economic Policy.
“The fact that initial jobless claims have risen for the second week is troubling and underscores that the nascent recovery in consumption is at risk,” said Madhavi Bokil, vice president of Moody’s Investor Service.
At the Bean Post Pub in New York City, owner Anthony LoPorto said he is still struggling to fill his tables and is concerned about what fall and winter will bring.
“I don’t believe in the fast rebound at all,” he said. “There just isn’t enough money in people’s pockets and there isn’t enough desire in people’s spirits.”
