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Coronavirus: US economy sees sharpest contraction in decades

New Yorkers in need receive free produce, dry goods, and meat at a Food Bank For New York City distribution event at Lincoln Center on July 29, 2020 in New York City.

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Food banks have seen a surge in demand

The US economy shrank by a 32.9% annual rate in the April-to-June quarter as the country grappled with cut backs in spending during the pandemic.

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.

Reduced spending on healthcare and consumer goods drove the fall.

Economists have said they expected to see the most severe drop in the second quarter, with recovery thereafter.

But as virus cases in the US surge and some areas re-impose restrictions on activity, that trajectory is in doubt.

More than 1.4 million people filed new claims for unemployment last week, up slightly from the prior week for the second week in a row.

Job losses

Jerome Powell, the head of America’s central bank, on Wednesday called the downturn the “most severe in our lifetimes” and urged further government spending to help American households and businesses weather the crisis.

“The path of the economy is going to depend to a very high extent on the course of the virus, on the measures that we take to keep it in check,” he said. “That is just a very fundamental fact about our economy right now.”

The International Monetary Fund has predicted that global growth will fall by 4.9% this year. On Thursday, Germany reported a record quarterly decline of 10.1%, while Mexico’s economy also reported a double digit contraction.

The US economy was down 9.5% from the same period a year ago.

It has lost nearly 15 million jobs since February, despite strong hiring in May and June. The US census estimates more than half of US adults live in households that have seen incomes cut since the pandemic.

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