US Economy Contracts 32.9% In June Quarter, Wall Street Crashes

Lloyd's of London

"This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending", it declared, adding, "The full economic effects of the COVID-19 pandemic can not be quantified in the GDP estimate for the second quarter of 2020 because the impacts are generally embedded in source data and can not be separately identified".

It was the deepest decline since the government began keeping records in 1947 and three times more severe than the prior record of 10% set in 1958.

Though the economy started to crawl out of its pandemic hole with the easing of lockdown restrictions in May and June, a surge of infections in some USA states has led officials to pause and in some cases, reverse those rollbacks.

Gross domestic product probably collapsed at a 34.1 percent annualized rate last quarter, according to a Reuters survey of economists.

Before coronavirus lockdowns swept the nation in March, the worst reading on United States gross domestic product (GDP) - which measures the value of all the goods and services produced in the economy - had been recorded in 1950, when the U.S. economy shrank 10 percent in the first quarter.

Reduced spending on healthcare and consumer goods drove the fall.

As for what comes next, economists say it's imperative to get the spread of coronavirus under control in order for the economy to heal. For the week ending July 25, the number of Americans filing jobless claims was 1,434,000, an increase of 12,000 from the previous week, Labor Department figures show (pdf).

USA stocks futures were down a bit less than one percent following the data.

Despite the record fiscal package, a historic drop is expected in government spending, driven by state and local governments, whose budgets have been decimated in the fight against coronavirus.

The annualized data assumes the damage wrought in a single quarter will play out over the entire year, but economists expect a rebound in coming months.

Business investment and residential housing also suffered sharp declines last quarter, with investment spending sinking 27% and residential housing plunging 38.7%.

But overall government spending was up 2.7%, powered by a 17.4% surge in federal spending, reflecting the more than $2 trillion in relief packages that Congress enacted to provide $1,200 payments to individuals, aid to small businesses and supplemental unemployment benefits.