US economy shrank at record-breaking 33% rate last quarter

US & World

WASHINGTON (AP) — The U.S. economy shrank at a dizzying 33% annual rate in the April-June quarter — by far the worst quarterly plunge ever — when the viral outbreak shut down businesses, throwing tens of millions out of work and sending unemployment surging to 14.7%, the government said Thursday.

The Commerce Department’s estimate of the second-quarter decline in the gross domestic product, the total output of goods and services, marked the sharpest such drop on records dating to 1947. The previous worst quarterly contraction, a 10% drop, occurred in 1958 during the Eisenhower administration.

Last quarter’s drop followed a 5% fall in the January-March quarter, during which the economy officially entered a recession triggered by the virus, ending an 11-year economic expansion, the longest on record in the United States.

The contraction last quarter was driven by a deep pullback in consumer spending, which accounts for about 70% of economic activity. Spending by consumers collapsed at a 34% annual rate as travel all but froze and shutdown orders forced many restaurants, bars, entertainment venues and other retail establishments to close.

Business investment and residential housing also suffered sharp declines last quarter. Government spending, diminished by a loss of tax revenue that forced layoffs, also fell.

The job market, the most important pillar of the economy, has been severely damaged. Tens of millions of jobs vanished in the recession. More than 1 million laid-off people have applied for unemployment benefits for 18 straight weeks. So far, about one-third of the lost jobs have been recovered, but the resurgent virus will likely slow further gains in the job market.

Related: 1.4 million seek jobless aid as virus keeps forcing layoffs »

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story is below:

The government is poised Thursday to deliver a double-dose of sobering news — on the devastation the coronavirus caused the U.S. economy last quarter and the damage it continues to inflict on the job market.

The pandemic is believed to have caused the economy to shrink during the April-June period at an annual rate exceeding 30%. That would easily shatter the existing record for a quarterly contraction, a 10% drop in 1958.

The virus forced millions of employers to slash jobs as consumers stopped shopping and traveling, and hotels, restaurants and small businesses closed their doors. Most analysts expect the economy to manage a sharp bounce-back in the current July-September quarter. Yet with confirmed coronavirus cases elevated in a majority of states, the economy could worsen in the months ahead.

At the same time that the government will estimate how the economy fared last quarter, it will issue its latest snapshot of the weekly toll of layoffs that remain persistently high as companies continue to cut jobs. More than 1 million people have applied for unemployment benefits for 18 straight weeks.

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