The numbers: A coronavirus battered economy slowed to a record 32.9% per year in the second quarter, underscoring how big the hole the United States is in to recover from the deepest recession in US history.
The wave of damage caused by the first global pandemic in a century was almost as bad as Wall Street expected. Analysts surveyed by MarketWatch had forecast a 35% decline in gross domestic product, the official scorecard for the US economy.
The economy began to recover in mid-May after a severe contraction earlier in the quarter, but analysts say the United States faces a long way back. Millions of Americans are still out of work, thousands of businesses have closed, and many of those that remain open have had to downsize due to tepid demand or ongoing government restrictions.
The recent surge in coronavirus cases in about half of the U.S. states, especially large ones like Texas, Florida, and California, has also dealt a severe blow to a fragile economic recovery.
Read:Consumer confidence falls in July and points to a more difficult economic recovery
Previously, GDP had never been reduced by more than 10% annually in any quarter since the government began tracking shortly after World War II.
What happened: Consumer spending, the main driver of the economy, contracted by an annualized record of 34.6% in the spring.
The decline was especially sharp in services: travel, tourism, medical care, meals away from home, and the like. Businesses that rely on large groups of customers and heavy store traffic were the hardest hit by government shutdowns after the pandemic erupted. Spending on services plummeted at an annual rate of 43.5%.
Households also spent much less on goods, although the decline was not as strong. Purchases fell 11.3%. Americans bought more cars, groceries, and other basic household items, many of them working from home, but sales of clothing, gasoline, and many other products fell dramatically.
Read:Unemployment claims rise for second consecutive week as U.S. economic activity slows
Business investment also stumbled severely as companies frozen or cut their expenses. Disbursements on infrastructure, such as oil platforms, sank 35%, while equipment spending fell 37.7%. Both are record declines.
Investment in new homes also fell by 38.7%, but appears to have declined rapidly. Record low mortgage rates have sparked an avalanche of new home sales and prompted builders to step up construction toward the end of the quarter.
The level of inventories also fell by a whopping annual rate of $ 234.6 billion in the second quarter, compared to a drop of $ 80 billion in the first quarter.
Firms reduced production as sales fell and exports fell. That weighed heavily on the economy, too, though output has rebounded in recent months after the economy reopened largely.
Government spending was a mixed bag. The federal government stepped in with massive infusions of aid to businesses, households and the unemployed, but states and localities have seen a big drop in tax revenue, even as spending skyrocketed.
General government outlays increased 2.7% in the spring. Federal spending increased more than 17%, offsetting a 5.6% decrease in state and local spending.
International trade was a minor drag on the economy. Exports decreased 64% in the second quarter, overcoming a 53% drop in imports. The coronavirus caused massive disruptions in the flow of world trade, and a global economic recession resulted in much less demand.
Read:US trade deficit in goods falls 6% as exports pick up, but overall picture remains ugly
It may be months, if not years, before trade fully recovers, economists say, especially with the United States and China still disagreeing on a number of issues. The two countries have the largest economies in the world.
Meanwhile, the inflation rate fell at a 1.9% rate in the second quarter after increasing at the beginning of the year. The cost of many goods and services has decreased as companies lower prices to try to increase sales. Inflation is likely to remain low until the pandemic fades.
Looking back on the first quarter, the originally reported 5% drop in GDP was unchanged. The pandemic hit in early March and opened a huge hole in the economy in the last month of the quarter.
Big picture: The economy is poised to expand in the third quarter, but the surge in coronavirus cases in many US states has already removed the air from the recovery. Economists surveyed by MarketWatch predict that GDP will expand at an annual rate of 18% from July to September, although estimates are likely to shrink.
The road to recovery depends largely on whether Congress passes another massive aid package, economists say, and whether the pandemic is back under control. Prolonged uncertainty will only make Americans save more and spend less, hurting the economy.
Read:
What are they saying ?: “The virus is the boss,” said corporate economist Robert Frick of the Navy Federal Credit Union. “The longer it lasts, the greater the damage.”
Market reaction: The Dow Jones Industrial Average DJIA,
and S&P 500 index SPX,
They were slated to open lower on Thursday exchanges. Shares have been trading in a narrow range for the past few weeks.
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