The last quarter was probably the worst on record for the US economy.

07/30/2020 Business


The Bureau of Economic Analysis will report how bad the second quarter was on Thursday, in its first estimate of gross domestic product, the economy’s most comprehensive measure.

Economists surveyed by Refinitiv expect an annualized decrease of 34.1% between April and June. That would be the worst contraction since the BEA began keeping quarterly records in 1947. It would also be more than four times worse than the decline during the 2007-09 financial crisis.

A fragile recovery

The United States closed in mid-March when the pandemic spread across the country. April was arguably the worst month of closure, with most of the country under orders to stay home and schools and businesses closed. No business, from popular stores to multinational corporations, escaped the impact of the pandemic.
Since then, business has rebounded, and economists predict that GDP will rise sharply in the third quarter of the year. The Federal Reserve Bank of New York, for example, predicts an annualized increase of 13.3% between July and September.

But the quality of the recovery is less about how it starts and more about how sustainable it is in the long term, said Michael Gregory, deputy chief economist at BMO.

For example, the United States added a whopping 7.5 million jobs in May and June, but still has close to 15 million jobs since February.

While many people are expected to be able to return to work, the pace of the rebound in the labor market is vital to the recovery. This is because the United States economy is highly dependent on consumer spending, and consumers spend less when they are out of work.

“Our concern has always been that, in the absence of a vaccine or collective immunity or clear and effective treatment, both business and consumer confidence do not recover from what they were before. That would be a shadow over spending consumers, “said Gregory.

Much could go wrong

Recovery is fragile and there are many things that could alter it. Covid-19 infections are on the rise across the country and states are delaying their reopening plans. Some workers are afraid to return to work, while others cannot because they are caring for family members. On top of that, government benefits, including expanded unemployment aid, are running out.
Senate Republicans propose another $ 1 trillion pandemic aid package, which would reduce the federal boost to unemployment benefits to $ 200 in addition to regular benefits, compared to $ 600 in previous government aid.
During the pandemic, the additional $ 600 a week has kept millions of Americans afloat. In some cases, she even paid more than people earned while working.

But some economists and legislators worry that too high benefits may prevent workers from returning to the job market. Policymakers are debating the right amount of unemployment aid so that Americans can live and help rebuild the economy, but they are also motivated to return to work when possible.

With an unemployment rate still at 11.1%, higher than during the worst moments of the financial crisis, cutting unemployment benefits too far could have serious consequences for consumer spending, which accounts for about two-thirds of states’ economic growth. United. The U.S. unemployment rate is expected to drop to 10.3% in the July jobs report to be released next week. Consumer confidence declined in July after a large spike in June as consumers became less optimistic about the economy in the short term, the Conference Board reported Tuesday.

But experts are concerned about the slowdown in the job recovery.

Last week, initial claims for unemployment benefits increased for the first time in 16 weeks, raising concerns about the state of the recovery. This week’s report, which is also due on Thursday morning, is expected to show another increase.

Economists say it will take years for the United States’ GDP to return to where it was before the pandemic.

A Fitch ratings report said Monday that the effect of the coronavirus recession will be felt for years to come, with US GDP in 2025 still more than 3% lower than it could have been without the coronavirus.

– Phil Mattingly contributed to this article.

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