US Economy Probably Suffered Historic Plunge in Second Quarter

New York City. Liberty Island partially reopens months after the attraction was shut down due to the coronavirus pandemic. Ac

Personal consumption, which accounts for about 70 percent of GDP, contracted 34.6 percent.

The figures lay bare the extent of the economic devastation that resulted from the government-ordered shutdowns and stay-at-home orders created to slow the spread of the novel coronavirus that abruptly brought a halt to the longest-running expansion.

The plunge in GDP and faltering recovery could put pressure on the White House and Congress to agree on a second stimulus package.

And Republicans and Democrats in Congress can not agree yet on the way forward.

Economists surveyed by MarketWatch had already predicted an 18% comeback for the third quarter.

The decline, though slightly less bad than expected, was the worst on record for the world's largest economy, dating back to 1947. On Thursday, Germany reported a record quarterly decline of 10.1%, while Mexico's economy also reported a double digit contraction.

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"The staggering news of the historic decline of the gross domestic product in the second quarter should shock us all", said Neil Bradley, chief policy officer at the US Chamber of Commerce, a business lobby group. For the week ending July 25, the number of Americans filing jobless claims was 1,434,000, an increase of 12,000 from the previous week, Labor Department figures show (pdf). Economists widely agree that without the historic fiscal package of almost $3 trillion, the economic contraction would have been deeper.

Adding to the economic gloom was a disappointing jobless claims report, also released Thursday, which showed that initial weekly unemployment filings rose for the second straight week after steadily falling from its March peak of nearly 7 million. The GDP report showed income at the disposal of households surged $1.53 trillion in the second quarter compared to an increase of $157.8 billion in the January-March period.

But overall government spending was up 2.7%, powered by a 17.4% surge in federal spending, reflecting the more than $2 trillion in relief packages that Congress enacted to provide $1,200 payments to individuals, aid to small businesses and supplemental unemployment benefits.

A sharp contraction in consumer spending was the main driver pushing the economy into its second-quarter chasm.

State and local government spending, diminished by a loss of tax revenue that forced layoffs, also fell at an annual rate of 5.6%.

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