US economy suffers biggest drop since Great Recession

By Alfonso Fernandez

Washington, Apr 29 (efe-epa).- US gross domestic product shrank 4.8 percent in the first quarter, its worst performance since plummeting 8.4 percent in the final quarter of 2008 at the height of the Great Recession, the Commerce Department said Wednesday.

“The decline in first quarter GDP was, in part, due to the response to the spread of Covid-19, as governments issued ‘stay-at-home’ orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending,” the department said.

The world’s largest economy grew 2.1 percent in 2019.

The figures released Wednesday represent the Commerce Department’s advance estimate, to be followed in a month by a second estimate and subsequently by a final reading.

Forecasts from private analysts called for a contraction in the range of 3.5 percent to 4.1 percent.

Consumer spending, which accounts for more than two-thirds of economic activity in the United States, plunged 7.6 percent in the first quarter as more than 26 million workers filed claims for unemployment benefits amid the coronavirus shutdown.

It was the steepest decline in personal expenditures in 40 years.

Exports fell 8.7 percent, while imports were down by 15.3 percent.

The US now leads the world in coronavirus cases – more than a million – and deaths, approaching 60,000. A full return to normal activity is not expected until June at the earliest, pointing to the strong possibility that GDP will take a much larger hit in the second quarter.

Restrictions on movement and closures of non-essential businesses began last month and seem likely to remain in place, at least in states such as California and New York, until the end of May.

“We believe economic reality during the (first) quarter was even worse,” Goldman Sachs economist Spencer Hill said in a note. “Larger than usual revisions to growth data are common in recessions and other periods of high economic volatility.”

Later Wednesday, the Federal Reserve will issue guidance on monetary policy and offer its take on the outlook for the US economy.

Having already cut interest rates to zero, the Fed has focused on ensuring liquidity for the financial markets, to the tune of more than $3 trillion, and offering loan guarantees to state and municipal government.

Congress, meanwhile, has passed four separate coronavirus relief packages with a cumulative value of nearly $3 trillion. That money is going toward increasing jobless benefits, support to businesses and direct payments to individuals, among other measures. EFE

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