The U.S. economy mostly shut down by the coronavirus pandemic, came up with its worst numbers in more than a decade early this year but the dismal showing reflects just a fragment of the damage to come.
The nation’s gross domestic product, the value of all goods and services produced in the U.S., declined at a seasonally adjusted annual rate of 4.8% in the January-March period as both consumer and business spending fell clearly, the Commerce Department reported. It is the first drop in output since early 2014 and the sharpest since late 2008 during the depths of the Great Recession.
Several Economists had forecasted a 3.8% decline in GDP.
Investors ignored the report with all three important indexes up more than 1.5% in morning trading, around 10 A.M., instead, they chose to focus on positive results from a test a possible remedy for coronavirus. Federal Reserve policymakers are expected to provide more insight into the state of the economy Wednesday afternoon after it concludes a two-day meeting.
The country is already mired in a deep – though likely short – recession.
The first-quarter reduction likely reflects only a portion of the actual slide because initial assessments typically miss some data and such gaps are emphasized during big economic shifts as many businesses were closed and couldn’t be surveyed.
The economy was operating solidly in the first quarter until most states began closing down nonessential businesses such as restaurants, malls, movie theaters and sports venues in mid-March to reduce the spread of the virus. The closures increased the pain echoing through a travel industry that had come to a near halt as Americans avoided airplane flights and hotel stays.
Moody’s Analytics estimates that about 30% of America’s economy is shuttered. About 10 million Americans in businesses affected both, directly and indirectly, lost their jobs in March, further reducing consumer spending in the first quarter.
By May, as many as 25 million Americans will have been laid off and another 20 million or so will see reductions in hours or wages. The unemployment rate, which rose from a half-century low of 3.5% in February to 4.4% in March, is foreseen to climb to 15% to 20% in April the highest since the Great Depression.
As a result, most of the economic fallout from the layoffs and business closings are playing out in the current quarter. Economic output is expected to shrink at a 24.5% annual rate in the current quarter, according to economists surveyed by Wolters Kluwer’s Blue Chip Economic Indicators. Research firms such as Nomura expect upwards of a 40% drop, the most since the 19th Century.
US Congress has passed about $3 trillion in programs to minimize the harm. Among other measures, lawmakers have boosted unemployment benefits and eligibility and offered forgivable loans that cover eight weeks of payroll and other costs for businesses with fewer than 500 employees that retain workers. The Federal Reserve also has rolled out a batch of programs to support lending to businesses and households.