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WASHINGTON (Reuters) – The US economy. USA It contracted in the first quarter at its fastest pace since the Great Recession, as stringent measures to stem the spread of the new coronavirus nearly closed the country, ending the longest expansion in the nation’s history.
The decline in gross domestic product (GDP) reflected a drop in economic activity in the last two weeks of March, which saw millions of Americans seeking unemployment benefits.
The Commerce Department snapshot of first-quarter GDP on Wednesday bolstered analysts’ predictions that the economy was already in a deep recession.
“The economy will continue to fall until the country reopens,” said Chris Rupkey, chief economist at MUFG in New York.
“If the economy fell so hard in the first quarter, with less than a month of pandemic blockade for most states, don’t ask how far it will go in the second quarter.”
Gross domestic product decreased at an annualized rate of 4.8% in the last quarter, diminished by sharp decreases in consumer spending and a reduction in inventory in companies.
That was the fastest rate of GDP contraction since the fourth quarter of 2008.
A deep decline in business investment was another major factor in the fall in the last quarter, which helped overshadow the positive news of a reduction in the import bill, the housing market and more government spending.
Economists polled by Reuters had forecast GDP to fall to a rate of 4.0% last quarter, although estimates were as low as a rate of 15.0%.
The economy grew at a rate of 2.1% in the fourth quarter.
The Commerce Department’s Office of Economic Analysis (BEA) said it could not quantify the full effects of the pandemic, but that the virus had contributed in part to the decline in GDP in the first quarter.
The BEA said the “stay home” orders in March had “led to rapid changes in demand, as companies and schools switched to remote work or canceled operations, and consumers canceled, restricted or redirected their expenses” .
Many factories and nonessential businesses such as restaurants and other social venues were closed or operated below capacity amid nationwide blockades to control the spread of COVID-19, the life-threatening respiratory illness caused by the virus.
The sharp contraction in GDP, along with record unemployment, could build pressure on states and local governments to reopen their economies.
It could also spell more trouble for President Donald Trump after criticism of the White House’s slow initial response to the pandemic as it seeks re-election in November.
Confirmed COVID-19 infections in the US USA They have topped a million, according to a count by Johns Hopkins University.
US stock index futures USA They ignored the GDP report, increasing after Gilead Sciences said its experimental antiviral drug met the primary goal of a trial that tested it on patients with COVID-19.
The dollar fell against a basket of coins, while US Treasury prices. USA They were mixed.
The United States Congress approved a tax package of around $ 3 trillion, and the Federal Reserve cut interest rates to near zero and greatly expanded its role as a banker of last resort, but economists say these measures are inadequate.
Fed officials were concluding a two-day policy meeting on Wednesday.
Consumer spending collapses
Economists also did not believe that the reopening of regional economies, as some states now do, would quickly return the overall economy to pre-pandemic levels, which they said would take years.
Reopening the economy also carries the risk of a second wave of infections and more blockages.
Economists expect an even sharper contraction in GDP in the second quarter and believe that the economy entered a recession in the second half of March, when social distancing measures came into effect.
The National Bureau of Economic Research, the private research institute regarded as the arbiter of US recessions, does not define a recession as two consecutive quarters of declining real GDP, as is the general rule in many countries.
Instead, it seeks a drop in activity, spread throughout the economy, and lasted more than a few months.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell at a rate of 7.6% in the first quarter, the largest decline since the fourth quarter of 1980, as demand for goods and services plummeted.
Consumer spending grew at a rate of 1.8% in the period from October to December.
The other components of GDP were equally weak in the last quarter.
Although the decrease in imports helped reduce the trade deficit and contributed 1.30 percentage points to GDP in the last quarter, that meant that no inventory was accumulated.
Inventories decreased at a rate of $ 16.3 billion in the first quarter after increasing at a rate of $ 13.1 billion in the fourth quarter.
Business investment contracted for the fourth consecutive quarter, decreased due to the decrease in spending on non-residential equipment and structures, such as mining exploration, wells and wells.
Trade investment has already been pressured by the Trump administration’s trade war with China, cheaper oil, and problems at Boeing.
While the housing market accelerated in the last quarter, the momentum appears to have faded in March. Government spending grew moderately.
Most economists have dismissed the idea of a fast, sharp bounce, or a V-shaped recovery, arguing that many small businesses will disappear.
They also predicted that some of the approximately 26.5 million people who have applied for unemployment benefits since mid-March are unlikely to find a job.
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