The national economy probably shrank by 35% annual rate in the second quarter.


The unprecedented collapse the US economy suffered in the second quarter as the COVID-19 pandemic gripped the country will be laid bare Thursday, with a report expected to show a record 35% annualized drop in domestic product raw.

As states shut down restaurants, stores, factories and other businesses to contain the spread of the virus, almost every corner of the economy has been affected, analysts say, including consumer spending, investments business, housing, commerce and government spending. Gross domestic product, or GDP, represents all goods and services produced in the country.

“Really, you’re going to see appalling numbers across the board,” says Scott Anderson, chief economist at Bank of the West.

The country’s sharpest recession is also expected to be the shortest, with job growth, consumer spending and other key metrics rebounding sharply in May and June after bottoming out in April, as states rebounded sharply in May and June. started to allow the reopening of companies in phases and that many employees were rehired. But spikes in coronavirus cases across much of the South and West have prompted at least 20 states to suspend or cancel plans to reopen, slowing the recovery expected in the second half of the year.

Some economists cite growing risks that the country will fall back into recession later this year. The Federal Reserve, which concluded a two-day meeting on Wednesday, kept its policy rate close to zero.

The partial pullback in the economy should be highlighted by Thursday’s report of last week’s first jobless claims, a rough measure of layoffs. The number of claims is expected to rise from around 15,000 to 1.43 million, according to a Bloomberg survey, the second consecutive increase after 15 weeks of decline.

While gruesome GDP figures for the April-June period are long overdue, a figure on Thursday that is significantly better or worse than the median 35% drop predicted by economists polled by Bloomberg could shed light on how long the market will last. reprise.

“The magnitude of the drop will tell us how much of a hill the economy needs to climb to return to pre-Covid levels,” said Jonathan Millar, deputy chief US economist at Barclays.

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Anderson, however, notes that the numbers are so important that they could be subject to substantial revisions.

Restaurants have been hit hard by the pandemic.

Consumer spending likely plunged

Consumer spending, which accounts for around 70% of economic activity, is likely to account for most of the second quarter’s free fall, as state closures and fears of contagion from Americans prompted them to close their portfolios. . Anderson expects a 36% drop in consumption.

Business investment, he estimates, fell 32% as companies curtailed spending on new equipment and structures amid plant closures and widespread uncertainty over the economic effects of the epidemic. . And instead of increasing their inventories, companies likely reduced their inventories to meet any existing demand, slashing annualized GDP by 3.6 percentage points, Wells Fargo estimates.

Housing construction and renovation offered a silver lining as the economy contracted 5% in the first quarter due to historically low mortgage rates, but the sector will not be spared in the April-June period. according to experts. Construction delays and the tendency for homebuyers to sit on the sidelines at the onset of the pandemic likely led to a sharp decline in residential investment, according to Nomura economist Lewis Alexander.

Trade has also likely weighed on the economy. Stricter shutdowns abroad than in the United States have likely hampered exports, according to Barclays, while imports have held up fairly well due to government assistance to U.S. consumers, including improved unemployment benefits and reduced unemployment benefits. $ 1,200 stimulus checks. All of this is expected to lead to a larger trade deficit, which hurts economic growth.

Massive federal stimulus spending is expected to make government spending the only sector contributing to growth, according to Barclays. But the boosting Wells Fargo numbers will be more than offset by a sharp drop in state and local spending as taxes and other revenue come down and schools shut.

The return depends on the virus

Better times are almost certainly to come, but how much better depends on how the epidemic progresses. Anderson estimates the economy will grow at an annual rate of 17.3% in the third quarter and 4.9% in the fourth quarter, a forecast that depends on Congress passing another 1,500 stimulus package. to $ 2,000 billion. After the historic drop in the second quarter, that would still result in a 4.8% contraction for the year, the largest since 1946.

Yet even that forecast could be threatened by virus outbreaks and state setbacks. Hours worked have declined in Arizona, Florida and Texas in recent weeks, according to Homebase, an employee scheduling software provider. Initial jobless claims, a gauge of layoffs, rose in the week ending July 18 for the first time since March. And Moody’s Analytics says several million jobs could be cut in July, partially reversing the 7.5 million payroll gains in May and June, a move that reversed about a third of the losses earlier in the spring.

Millar does not expect the country’s gross domestic product, adjusted for inflation, to return to its pre-pandemic level until the start of 2022. And Moody’s estimates that a return to employment levels d ‘before the pandemic will only occur in 2023. the economy below its production potential and the wage bill below the full employment that prevailed before the crisis.

Economists point to the lingering damage of the crisis, as some companies have closed permanently and some permanently laid off employees are struggling to find new jobs.


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