The collapse in the U.S. economy caused by the coronavirus pandemic triggered the biggest drop in gross domestic product in the first quarter since 2008 in a prelude of an even more massive decline in the spring. GDP, the official scorecard for the economy, shrank at a 4.8% annual pace from the beginning of January to the end of March. Economists polled by MarketWatch had forecast a 3.9% decrease. The worldwide spread of the coronavirus begin to nip at the edges of the U.S. economy early in the quarter before exploding in March into the biggest crisis since the Great Depression some 90 years ago.
The economy is likely to contract by 25% or more in the second quarter, with some forecasts putting the decline at a record 40%. Before the crisis, the U.S. had been expanding at a steady 2% pace during what had become the longest expansion in history at 11 years. Consumer spending, the main engine of the economy, fell at a 7.6% annual pace. That’s the largest retreat since 1980. Americans slashed spending as millions of people lost their jobs, stores were closed and households tried to save more money to get them through the crisis. Businesses investment also pulled back. Spending on structures sank almost 10% and investment in equipment tumbled 15%. The value of unsold goods, or inventories, fell by a $29.4 billion annual rate. Exports slid 8.7%, but imports fell an even steeper 15.3%.
Government spending rose slightly. The economy has already plunged into a deep recession and is likely to be weak for quite some time. How quickly the U.S. turns its around and begins to grow again will depend on how well the states and federal government limit the spread of COVID-19 and allow individuals and businesses to get back to work. Even then, lingering worries about the virus are likely to cause many Americans to continue to practice social distancing, an outcome that will harm key industries such as airlines, hotels and restaurants and restrain the economy. The Dow Jones Industrial Average and S&P 500 have rallied in the past week, in fits and starts, on the hope that the U.S. economy will continue to reopen gradually. Stocks were set to open higher in Wednesday trades.
