The American economy contracted in the second quarter as businesses and consumers dealt with lockdowns, reopenings, and pullbacks as the coronavirus continues to wreak havoc.
The Commerce Department said U.S. gross domestic product fell at a 32.9 percent annual rate in the second quarter and was a 9.5 percent drop compared with the same quarter a year ago. This is slightly worse than the 8.5 percent drop that economists were projecting and the worst since the Commerce Department began to keep records in 1947.
In addition to the dismal GDP numbers, unemployment claims rose again last week to 1.43 million and consumer spending fell the most since the 1940s.
The recovery from the 2-month lockdown hasn’t been reversed, only slowed. But it puts a crimp in Donald Trump’s re-election prospects as the economy is now expected to recover more slowly.
“The key caveat is that it will be a lot less better than we were expecting a few months ago,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said about the third-quarter, citing the pickup in coronavirus cases.
JPMorgan Chase & Co.’s tracker of credit and debit-card transactions, for instance, showed that spending rose in May and early June before stalling and remained flat through last week. Data by Facteus, which tracks transactions by 15 million debit and credit card holders, also suggest restaurant spending was increasing in June and has largely flattened since.
The U.S. Census Bureau also said in its latest weekly Household Pulse Survey that 51.1% of households experienced a loss of employment income in the week ended July 21, up from 48.3% four weeks ago.
Since this is an unprecedented economic situation, predictions, models, and projections are next to worthless. The bottom line is that no one knows what will be open or closed in the near term, so trying to decipher signs is a fool’s errand.
The only past history we have that might help to examine is that the American economy is extraordinarily resilient. It has weathered far worse than the coronavirus and recovered. This latest stimulus bill Congress is currently negotiating is critical to shaping what kind of recovery we will have. Will it be an “Obama recovery” with glacial job growth and a sputtering economy? Or will it be a more normal recovery with strong growth for 3 or 4 quarters accompanied by job creation and rising incomes?
If Joe Biden is elected, expect something even worse than the Obama recovery. Biden’s concern will not be jobs or the economy. He will become the “social justice president” and, instead of growing the economy, will redistribute the goodies and effect the largest transfer of wealth in American history.
The economy will come back. How far and how fast will depend on who sits in the Oval Office next January.