GDP Drops At 32.9% Rate, The Worst U.S. Contraction Ever : Coronavirus Updates The coronavirus triggered the sharpest economic contraction in modern history in the second quarter as the pandemic hammered the economy, the Commerce Department said Thursday.

3 Months Of Hell: U.S. Economy Drops 32.9% In Worst GDP Report Ever

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STEVE INSKEEP, HOST:

We now have confirmation that shutting down the U.S. economy for a good part of the second quarter was very bad for business. In truth, we knew that, of course, but a number from the government makes it clear just how bad. It's an estimate of economic growth, or the lack of it, in the second quarter - April, May and June. You will recall that the country began shutting down in March and was pretty fully shut down - as close as it could be anyway - by April 1.

NPR chief economics correspondent Scott Horsley is with us. Scott, good morning.

SCOTT HORSLEY, BYLINE: Good morning, Steve.

INSKEEP: What's the number you got?

HORSLEY: It's the sharpest contraction in postwar history, Steve - 32.9%. Now, that's a little bit misleading. GDP numbers are usually reported in annual rates as if the sharp contraction we saw in the second quarter was going to continue for a full year, and we don't expect that to happen. Nevertheless, it is about four times the worst quarter that we saw during the Great Recession more than a decade ago. Chief economist Nariman Behravesh of IHS Markit calls this a horrific GDP number.

NARIMAN BEHRAVESH: We've never seen anything quite like it.

HORSLEY: Now, this was led by a sharp drop in consumer spending. As you mentioned, restaurants and retailers closed their doors in a desperate fight to slow the spread of the virus. As sharp as the downturn was, though, it was also very short. By the end of the quarter, we did begin to see a resumption of economic activity. But to be sure, that recovery is fragile and incomplete.

Just this morning, we learned that another 1.4 million people applied for state unemployment benefits last week. That number was up slightly for the second week in a row. Claims for a special federal unemployment program for folks who ordinarily are not eligible were down a bit.

INSKEEP: Well, that sets the stage for now. We're in the third quarter now, Scott - July, August, September. What do economists expect?

HORSLEY: A lot depends on what happens with the pandemic, and some businesses are more vulnerable than others. Behravesh described a kind of two-speed recovery, and you can hear that in some of the folks I've been talking with this week. Restaurant owner Cameron Mitchell - he likens this pandemic to a hurricane. He says what appeared to be a business rebound in June turned out to be only the eye of the storm, and now he's being buffeted again by gale-force winds.

CAMERON MITCHELL: The most prolonged, difficult operating environment I've ever been a leader in, and I've been in this business for 40 years.

HORSLEY: Mitchell operates restaurants in 13 states, and he points to Florida as an example. His outlets there were almost back to normal in early June, but as infections took off, business dropped again. And that's true for a lot of businesses that depend on consumer traffic.

INSKEEP: Well, which industries are doing well, then?

HORSLEY: Well, factories are picking up steam again. Construction crews are humming once more. So are dentists' offices, actually. About 450,000 people went back to work in dental offices in May and June.

INSKEEP: Yeah.

HORSLEY: In Michigan, hygienist Alexis Bailey says at first she was nervous about going back to work, but she got comfortable pretty quickly with the new safety precautions. And to her surprise, there was a lot of patients. The office has been booked solid.

ALEXIS BAILEY: People missed getting their teeth cleaned. They want to catch up. I think people - every time they come in, they say, this has been nice to get out of the house and, you know, feel safe and talk to somebody.

INSKEEP: I get the impression, though, Scott, that people are still categorizing things as essential and nonessential. You got to get to the dentist eventually, but maybe you don't need to go out to the movies.

HORSLEY: And you might be more willing to put up with some safety precautions in the dentist's chair than you would be sitting at a fancy restaurant.

We do know that, you know, spending has dropped, and that is keeping a lid on economic activity. And it was a decline in consumer spending that really led to that sharp contraction in the economy in the second quarter. It might have been even worse, though, were it not for the huge amount of federal spending and relief payments that went out. Federal Reserve Chairman Jerome Powell said yesterday those $1,200 relief payments and the supplemental unemployment benefits have been an important lifeline keeping the economy afloat.

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JEROME POWELL: In a broad sense, it's been well spent. It's kept people in their homes. It's kept businesses in business. And that's all a good thing.

HORSLEY: Now, of course, those supplemental unemployment benefits are expiring tomorrow, and Congress seems to be stuck as they try to figure out what kinds of additional support both families and businesses might need to keep the economy from sliding backwards again.

INSKEEP: Scott, thanks so much. Really appreciate it.

HORSLEY: My pleasure, Steve.

INSKEEP: That's NPR's Scott Horsley.

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