The news about the economy is beginning to emerge, and it is as bad as we feared. The Department of Commerce released its initial estimate today on how much the economy has contracted in the first quarter of 2020. They estimate that Gross Domestic Product (GDP), the measure of our economic output, dropped 4.8 percent in the first quarter. That puts the United States firmly in recession mode. That’s just the initial report. Some are warning of a contraction of anywhere from 20-40% in the second quarter. This follows a survey released Tuesday showing that nine in ten Americans fear an economic collapse.
The crater in GDP ends a ten-plus year run of economic growth. As NBC reports,
The coronavirus pandemic has slammed into the economy so hard the nation’s GDP has fallen by 4.8 percent, bringing the longest economic expansion on record to an abrupt halt.
It’s the steepest decline since the Great Recession, which ended in 2009. Economic growth was tracking at or above 2 percent until mid-March.
On Tuesday, Axios-Ipsos released a poll showing that nine in ten Americans, both Republicans and Democrats, fear an economic collapse. Democrats were more likely to fear reopening too soon than Republicans, but everyone thinks the economic fallout will be severe. In a poll of 1,021 adults April 24-27 for their ongoing Coronavirus Index, 89% of respondents said that they were somewhat, very, or extremely concerned about an economic collapse – including 89% of those who self-identified as Republicans, versus 88% of Democrats.
Today’s bleak economic outlook validates that fear. Per the NBC report,
“You’re looking at something like minus 20 percent to minus 30 percent in the second quarter,” White House economic adviser Kevin Hassett told CNBC on Monday, noting that the coronavirus is “the biggest shock since the Great Depression. It’s a very grave shock and it’s something we need to take seriously.”
The Congressional Budget Office estimated second-quarter GDP would be down by as much as 40 percent, for the worst quarter since 1947.
Economists say the U.S. likely entered recession — generally defined as two consecutive quarters of decline in GDP — in the second half of March, when lockdowns began.
A forty percent contraction seems unimaginable. We’re likely to have another week of several million first time jobless claims, approaching or exceeding 30 million total for the six week period that began with widespread shelter in place orders in March. When the second quarter numbers emerge, it will represent a full three months of economic fallout. Problems will cascade through the economy, making a V-shaped recovery unsustainable. Making matters worse, weaknesses already existed in our financial markets, as I wrote when this crisis began. Combining those weaknesses with state and federal leaders grinding our economy to a halt, we’ll see a historic economic shock never before seen.