US economy collapsed in Q2 amid pandemic

US economy collapsed in Q2 amid pandemic

Jobless claims rise

More businesses have had to shut down again as virus cases rise, undermining the nascent US recovery.
More businesses have had to shut down again as virus cases rise, undermining the nascent US recovery.

WASHINGTON: The US economy collapsed in the midst of the coronavirus pandemic, suffering the largest decline on record, while hopes for a recovery took another hit as job losses increased, according to government data released Thursday.

The 32.9% GDP contraction, though slightly less bad than expected, was the worst on record for the world's largest economy dating back to 1947.

And while President Donald Trump continues to promise a dramatic recovery, Covid-19 cases have resurged in recent weeks, eroding early signs of a rebound and forcing authorities in some states to reimpose restrictions.

Labor Department data indicated a second straight increase in initial claims for jobless benefits last week following several weeks of declines, prompting renewed calls for Congress to quickly approve a new round of emergency spending to support the economy.

The growth figures released separately by the Commerce Department are given at an annual rate -- a measure of the full-year result if the damage was translated over 12 months. Compared to the same quarter of 2019, economic activity fell a less-dramatic 9.5%, still the worst figure on record.

"The staggering news of the historic decline of the gross domestic product in the second quarter should shock us all," US Chamber of Commerce Executive Vice President Neil Bradley said in a statement.

The data "should compel Congress to move swiftly to provide targeted and temporary assistance to unemployed Americans, employers, and state and local governments, and liability protections for businesses who follow public health guidelines."

Employment setback

Congress is currently locked in debate over the size and composition of the next spending bill, with Democrats fighting to retain the US$600 of additional weekly benefits for unemployed workers, while Republicans want to cut those payments and offer protection to businesses that reopen even if some employees are infected.

Shortly after the data were released, Trump took to Twitter to rail against potential voter fraud and suggest postponing the Nov 3 election, while complaining that the media is not reporting on coronavirus flare ups in other countries.

"Delay the Election until people can properly, securely and safely vote???" Trump tweeted, prompting many to say he was trying to distract attention from the dismal numbers.

After surging in March amid the massive job losses at the start of the pandemic, first time claims for jobless benefits have been falling for weeks, but they rose again to 1.43 million in the week ended July 25, the Labor Department said on Thursday.

That reflected a worse-than-expected increase of 12,000 from the previous week and does not include the 829,697 new claims by people who filed under a program for those who would not normally be eligible for aid.

"The latest jobless claims data show that the resurgence in Covid-19 cases is taking a toll on the recovery in the labor market," Oxford Economics lead US economist Nancy Vanden Houten said in an analysis.

Continuing claims, the number of people receiving benefits for more than a week, jumped to over 17 million while the insured unemployment rate rose to 11.6% in the week ended July 18.

Growth stalled

The plunge in GDP was driven largely by the drop in its largest component consumer spending, which fell 34.6% annualised, according to the data, which was the first estimate for the second quarter.

After a 5% drop in the first three months of the year, economists had been expecting the damage from Covid-19 to contract activity by 35% or more amid the nationwide halt to travel and much business, which caused tens of millions of jobs to be destroyed.

The data show trade also took a huge hit, with exports falling just over 64%, and imports down 53.4%.

But personal income got a boost of $1.4 trillion in the quarter from the government emergency spending measures that provided payroll funds for businesses and direct unemployment payments to workers.

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