The cost of the coronavirus pandemic in the nation’s economy became emphatically clearer on Thursday when the government detailed the most devastating three-month collapse on record, eliminating nearly five years of growth.
Gross domestic product, the broadest measure of goods and services produced, fell 9.5 percent in the second quarter of the year as consumers cut spending, companies cut investment and world trade dried up, he said. the Department of Commerce.
The drop, equivalent to an annual rate of decline of 32.9 percent, would have been even more severe without trillions of dollars in government aid for homes and businesses.
But there is increasing evidence that the attempt to freeze the economy and defeat the virus has not produced the rapid rebound that many envisioned. An increase in coronavirus cases and deaths across the country has led to a further pullback in economic activity, reflecting consumer concerns and renewed closings. And much of the government’s support is about to run out, with Washington deadlocked on next steps.
“In another world, a sharp drop in activity would have been just a good and necessary bump as we tackle the virus,” said Heather Boushey, president of the Washington Center for Equitable Growth, a progressive think tank. “From where we sat in July, we know this was not just a short-term problem. We don’t control the virus. “
Data from Europe shows what could have been. Germany on Thursday reported a fall in second-quarter GDP that was even more pronounced than the fall in the United States. But in Germany, coronavirus cases fell sharply and remain low, which has allowed for a much stronger economic rebound in recent weeks.
In the United States, the rebound appears to have stalled. Last week, more than 1.4 million Americans filed new claims for state unemployment benefits, the Labor Department said. It was the nineteenth week in a row that the number exceeded one million, a figure unheard of before the pandemic. An additional 830,000 people applied for benefits under the federal Pandemic Unemployment Assistance program, which supports freelancers, freelancers, and other workers who are not covered by traditional unemployment benefits.
Overall, some 30 million people receive unemployment benefits, a number that has slowly declined as new layoffs, many of them permanent job losses, as opposed to spring temporary leave, offset gradual rehire. Some economists now fear that the monthly jobs report to be released next week shows that total employment fell in July after two months of strong gains. Slow recovery and falling signs are hurting consumer confidence, which fell in July after rising in June.
“Not only have we stagnated, but we may be losing ground,” said Diane Swonk, chief economist at the accounting firm Grant Thornton in Chicago. “Having these kinds of numbers in July, when many in Congress expected this to end by the summer, underlines how unique and persistent the Covid crisis is.”
The economic collapse in the second quarter was unrivaled in speed and impressive in severity. The decline was more than double that of the Great Recession a decade ago, but it occurred in a fraction of the time. The only possible comparisons in modern American history occurred during the Great Depression and post-World War II demobilization, both prior to modern economic statistics.
Economists and epidemiologists alike describe the failure of the US to control the virus during the initial shutdown as a missed opportunity. Government efforts in financial support were largely successful: after plummeting in March and April, retail sales increased in May and June as stimulus payments and a $ 600 weekly federal supplement to profits due to unemployment they began to flow to the bank accounts of consumers. Loans made under the Paycheck Protection Program allowed small businesses to start bringing back the laid-off workers.
The wave of evictions and foreclosures that many economists predicted in the early recession did not materialize to a large extent. But those programs have expired or are about to expire. And efforts to extend them have been delayed in Congress because of disagreements, between parties and between Republicans, about how and how much to spend.
“The lesson from early policy experiments is that it is possible to maintain people’s incomes and offset those financial constraints,” said Tara Sinclair, an economist at George Washington University and a senior fellow at the Indeed Hiring Lab. “But now from today, we’re not going to have that anymore. “
The upward and downward nature of recovery is shown by the Russian River Brewing Company in Sonoma County, California.
Before the pandemic, half of the company’s revenue came from retail sales: food and drink at its two bars, visits and tastings at the brewery itself, in-person purchases of bottled beer. When California ordered restaurants to close in mid-March, all of that revenue disappeared.
“We panicked for 48 hours,” said Natalie Cilurzo, the owner of the Russian River with her husband, Vinnie.
Once the panic was over, the Cilurzos began to find ways to plug the hole. With the closure of the restaurants, sales at grocery stores increased and online ordering proved to be a success. A loan through the Paycheck Protection Program helped cover employee wages and other expenses. And in early June, the Russian River was allowed to reopen its breweries.
But it has been a partial and uneven upturn. Revenue has more or less returned to normal levels, but earnings are still low because margins are lower for supermarket sales. The company has brought in most of its laid-off workers, but has permanently laid off 20 percent of its staff. And one of its locations had to close again when California again imposed restrictions on indoor dining.
“We are open, we are closed, we are open, we are closed, we are in this type of yo-yo here in California,” said Ms. Cilurzo.
The GDP report shows the severity of the temporary slowdown and suggests evidence of longer-lasting damage. Consumer spending fell 10.1 percent, led by an almost total collapse in spending on restaurant meals, recreation, and other services. Even spending on health care declined as patients canceled elective procedures and delayed routine care.
The companies also fell back sharply on their investments, which Sinclair said was a worrying signal because it suggested they did not expect a rapid recovery in demand. And trade, both imports and exports, plummeted, reflecting the global nature of the pandemic.
There were flashes of optimism. Spending on goods fell a modest 3 percent, and some pro-quarantine categories saw increases. And although residential construction plummeted in the second quarter, more recent data suggests that the housing market has seen a sharp rebound, driven by low interest rates.
However, many economists warn that spending could decrease further if Congress reduces or eliminates aid to households and businesses. And it would add to the stress on the unemployed, who are facing the expiration of additional unemployment benefits at a time when the virus remains prevalent and jobs remain scarce.
Louise Francis had worked as a banquet cook at the Sheraton Hotel in New Orleans for nearly two decades when she was laid off last spring. It took her three months of effort to get her first unemployment check, and in the meantime, she enlisted the help of her adult daughters. But when she started receiving the money, the $ 600 weekly federal supplement to regular state benefits allowed her to find some stability.
“With the $ 600, you could see your way a little bit,” Francis said. “You could feel a little more comfortable. You could pay three or four bills and not feel so late. “
With the supplement finalized and no consensus in Congress to replace it, Francis, 59, is unsure what he will do. Her age, combined with her diabetes and high blood pressure, puts her at high risk for serious illness if she contracts the coronavirus, making her reluctant to accept any job that puts her face-to-face with the public, especially with growing cases. in Louisiana.
Mrs. Francis’s husband is retired, leaving her as the breadwinner, and he will have to survive on $ 247 a week in state benefits.
“If they take that $ 600 from us, how am I supposed to continue paying my bills?” she said. “You still have to eat to pay for insurance. If they take it away, they will push us into poverty. ”
Nelson D. Schwartz contributed reporting.
