“Unprecedented” gets thrown about a lot these days. Here’s another one. The U.S. Bureau of Economic Analysis reports the economy contracted at an annual rate of nearly 33% in the second quarter of the year.
Real gross domestic product (GDP) decreased at an annual rate of 32.9 percent in the second quarter of 2020 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 5.0 percent.
This advance estimate will be revised with a second estimate, using more complete data, to be released August 27. Some expect it to worsen. Still, the picture of an economy falling off a cliff, shown in the BEA chart below, is unlikely to look a whole lot different.
As the Associated Press reports, this is unprecedented.
The U.S. economy plunged by a record-shattering 32.9% annual rate last quarter, and the coronavirus pandemic is still cutting a path of destruction, forcing millions out of work and shuttering businesses.
The economy’s stunning contraction in the April-June quarter came as the viral outbreak pushed already struggling businesses to close for a second time in many parts of the country, sending unemployment surging to nearly 15%. The government’s estimate Thursday of the second-quarter fall in the gross domestic product was the sharpest such drop on records dating to 1947. The previous worst quarterly contraction, a 10% drop, occurred in 1958 during the Eisenhower administration.
The CNBC report also emphasizes the “unprecedented” nature of the drop.
…it was the worst drop ever, with the closest previously coming in mid-1921.
The report “just highlights how deep and dark the hole is that the economy cratered into in Q2,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s a very deep and dark hole and we’re coming out of it, but it’ going to take a long time to get out.”
Things may yet worsen, AP writes.
So steep was the economic fall last quarter that most analysts expect the economy to produce a sharp bounce-back in the current July-September period. Yet with the rate of confirmed coronavirus cases having surged in a majority of states, more businesses being forced to pull back on reopenings and the Republican Senate proposing to scale back government aid to the unemployed, the economy could worsen in the months ahead.
As we wrote earlier, the Senate’s $1 trillion dollar proposal reduced the pandemic-related UI benefits and provided no additional funding to state and local governments. With a group of Republican senators already objecting to the $1 trillion plank prospects for seeing it increase in negotiations seem remote. The Spokesman-Review reports discussions in the Senate appear to be hardening along party lines.
In interviews with The Spokesman-Review, Sen. Patty Murray, a Washington Democrat, and Sen. Jim Risch, an Idaho Republican, illustrated the gulf between their parties on issues including unemployment insurance, liability protections and the bill’s price tag .
“We’re not getting closer together, we’re getting farther apart,” Risch said. “I will be very surprised if we get (an agreement) by the end of next week.”
Getting to yes will be difficult.
A compromise bill would need to pass both the Democratic-controlled House and GOP-controlled Senate and be signed by President Donald Trump, a tough legislative needle to thread.
With unemployment numbers still high, the pandemic threatening to slow economic reopening further, a plummeting national economy, and a gridlocked Congress, state lawmakers‘ bet on additional federal aid and to help with the state’s budget shortfall looks risky. As the Washington Research Council has documented, the longer the Legislature waits to act, the deeper the eventual budget cuts and/or the higher the tax increases.
This, unfortunately, is not a good time to be banking on a brighter fiscal outlook in the next several months.