The American economy shrank by an annualized rate of 4.8% in the first three months of 2020 as the coronavirus pandemic forced millions of Americans out of work and thousands of businesses in the country to close down, according to data released on April 29 by the Commerce Department.
The U.S gross domestic product fell at a yearly rate of almost 5% since the first three months of 2019, according to the advance estimate from the Bureau of Economic Analysis amid the economic devastation caused by the coronavirus pandemic and the desperate measures of the government to contain it.
The fast decline in the economy
In the U.S, the first three months of 2020 is the first quarter of negative GDP growth since the same period in 2014, and the worst quarter of GDP growth for the U.S. since 2009. After two months of solid economic activity and the slowly rising consumer confidence, America experienced a downfall after the spread of COVID-19 cases through February and March.
The first-quarter drop in GDP was due to the millions of layoffs and business closures that happened under social distancing orders from local governments and guidelines suggested by President Donald Trump in order to combat the spread of the virus.
According to BEA, the coronavirus pandemic has led to fast changes in demand, as businesses and schools switched to remote work or canceled operations and consumers restricted, canceled or redirected their spending. BEA also warned that the full economic effects of the COVID-19 pandemic can't be quantified in the GDP estimate for the first quarter of 2020.
Unemployment and changes in consumers
Since mid-March, more than 26 million Americans have filed new applications for unemployment benefits, according to the Labor Department. The jobless rate is now pushing from 3.5% to 20%. Thousands of businesses across the country are facing financial peril or bankruptcy after being forced to close or limit operations for months.
Consumer spending sunk at an annualized rate of 7.6% in the first quarter. Spending on goods such as electronics, appliances, and furniture sunk 16.1%, while spending on food, cleaning products, and other purchases that are short use rose 6.9% as Americans stocked up on essentials.
Spending on services decreased by 10.2% after rising by 2.1% throughout 2019, and business investment fell 8.6% after declining steadily last year. According to Cailin Birch, global economist at the Economist Intelligence Unit, economic growth remained firm in January and February but was curtailed in March as much of the country gradually came under stay-at-home orders because of COVID-19.
Birch added that the real figure to watch will be second-quarter GDP, as much of the negative economic impact will be felt in April-June. Early indicators are flashing strongly negative. She also cited sharp declines in purchases of plane fuel and automobiles.
As some states in the country are planning to loosen economic restrictions despite the COVID-19 pandemic in the country, President Donald Trump and his top advisers have expressed confidence that America would be able to recover fast.
Related article: Did Sweden's Alleged 'Herd Immunity' COVID-19 Strategy Work?
