Coronavirus: US economy shrinks at fastest rate since 2008
The US economy suffered its most severe contraction in more than a decade in the first quarter of the year, as the country introduced lockdowns to slow the spread of coronavirus.
The world’s largest economy sank at an annual rate of 4.8%, according to official figures released on Wednesday.
It marked the first contraction since 2014, ending a record expansion.
But the figures do not reflect the full crisis, since many of the restrictions were not put in place until March.
Sine then, more than 26 million people in the US have filed for unemployment, and the US has seen historic declines in business activity and consumer confidence. Forecasters expect growth to contract 30% or more in the three months to June.
“This is off the rails, unprecedented,” said Mark Zandi, chief economist at Moody’s Analytics. “The economy has just been flattened.”
The contraction in the US economy is part of a global slowdown as a result of the coronavirus pandemic.
In China, where restrictions were in place for much of the quarter, the economy shrank by 6.8% – its first quarterly contraction since record-keeping began in 1992.
And on Wednesday, Germany said its economy could shrink by a record 6.3% this year.
“We will experience the worst recession in the history of the federal republic” founded in 1949, Economy Minister Peter Altmaier said.
Before the coronavirus knocked the global economy off course, the US economy was expected to grow about 2% this year.
But by mid April, more than 95% of the country was was in some form of lockdown. Although some states have started to remove the orders, they remain in place in many others, including major economic engines such as New York and California.
Many companies have warned of significant hits related to the pandemic as they share quarterly results with investors.
On Tuesday, General Electric said its revenues had fallen 8% in the first quarter, while Boeing – already in crisis after fatal crashes of its 737 Max plane – reported a 48% revenue fall, and said it planned to reduce output and cut jobs.
“The Covid-19 pandemic is affecting every aspect of our business, including airline customer demand, production continuity and supply chain stability,” chief executive Dave Calhoun said.
The Commerce Department said consumer spending – which accounts for about two thirds of the US economy – dropped 7.6% in the first three months of the year.
Spending on food services and accommodation plummeted more than 70%, while clothing and footwear purchases were down more than 40%.
Health spending also plunged – despite the virus – as concerns about infection prompted doctors to postpone routine treatments and other medical care.
The economic pain in the US is expected to be even more severe in the April-June period, but economists say even the estimate for the first quarter is likely to be revised lower, as the government receives more data.
“It’s very difficult to gauge the depth of the decline,” Mr Zandi said. “We won’t really know the extent of the economic damage for years.”
The US has responded to the economic crisis with more than $3tn in new spending.
The central bank has also mounted a significant intervention. Policymakers there are expected to speak about those efforts on Wednesday.