The economy contracted at a record-breaking 32.9% annual rate in the second quarter, the Bureau of Economic Analysis reported Thursday in a preliminary analysis, a reflection of the deep damage inflicted by the pandemic.
The negative growth in Thursday’s report is by far the largest in U.S. history. Until now, the biggest drop in GDP was 10% in 1958, according to the Commerce Department’s Bureau of Economic Analysis. The largest drop in GDP during the Great Recession from 2007 to 2009 was 8.4%.
The contraction in the second quarter comes on the heels of the economy contracting 5% in the first quarter.
The contractions in both the first and second quarters are presented as annualized rates, meaning they represent the economic activity that took place in those quarters as occurring for a full year. The actual decline in economic activity in the second quarter was much smaller: When compared to the first quarter, GDP in the second quarter contracted 9.5%.
The economy has recovered since the worst of the pandemic, but the comeback has been slowed by spikes in coronavirus infections that paused consumer spending in many parts of the county, according to Federal Reserve Chairman Jerome Powell.
“People aren’t going out to restaurants, bars, gas stations, pharmacies, and salons,” he said on Wednesday.
Google’s Community Mobility Report supports the chairman’s analysis. Its report from Saturday shows that foot traffic to places such as restaurants, cafes, shopping centers, theme parks, museums, libraries, and movie theaters is down 19% overall from January and early February, before the pandemic hit the United States.
In virus hot spots, the decreases are larger. In Florida, which has more than 450,000 cases, foot traffic is off by 26%. California, with more than 475,000 cases, has 33% less foot traffic to these destinations.
The free-fall in economic activity is due to the pandemic, according the BEA.
“The decline in second-quarter GDP reflected the response to COVID-19. … This led to rapid shifts in activity to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending,” the agency reports.
Pundits expect the economy to rebound in the third quarter, but Powell warned that the economic recovery will largely depend on controlling the coronavirus.
“I would be remiss in not stressing this enough: the path of the economy is going to depend to a very high extent over the course of the virus and the measures that we take to keep it in check,” he said.
One bright spot in the BEA report is that current-dollar personal income increased $1.39 trillion in the second quarter, compared with an increase of $193.4 billion in the first quarter.
