The U.S. economy contracted 4.8 percent year over year in the last quarter amid a suspension of economic activity due to the Coronavirus Pandemic, which triggered a recession that interrupted the longest growth period in history.
This is the first quarterly decline in six years and the sharpest since the economy contracted by 8.4 percent in annual terms in the fourth quarter of 2008.
The first-quarter results will only herald an even more pessimistic GDP report for the period from April to June as company closures and layoffs continue. The Congressional Budget Office estimates that the downturn will reach 40 percent in annual terms this quarter.
This will be the worst quarterly result since the statistics began in 1947, four times higher than the worst recorded in 1958.
According to the Department of Commerce report, the main reason for the recession was the decline in consumer spending, which accounts for 70 percent of economic activity in the United States. Consumer spending fell by 7.6 percent in annual terms in the first quarter, the worst recession since 1980.
Business investment also fell by 2.6 percent, with investment in equipment falling by 15.2 percent.
One of the few bright spots was trade, which contributed 1.3 percent to GDP. Government expenditures rose by 0.7 percent in the first quarter and are likely to continue to rise, given the funds allocated by Congress under the crisis packages.
The real estate sector recorded an increase of 21 percent in the first quarter, driven by lower mortgage rates, but real estate sales began to fall as quarantine measures were introduced in mid-March.
Some analysts continue to hope that the economic situation will stabilize quickly and confidently after the health crisis is resolved, but many are beginning to suspect that the recovery will be long.
The administration is making more optimistic predictions. President Donald Trump told reporters this week that he expects strong GDP growth in the third quarter, “an incredible fourth quarter” and “an incredible next year.
Finance Minister Stephen Mnuchin said this week that the economy will “cheer up” in summer as quarantine measures are lifted and trillions of dollars are injected.
The Federal Reserve, which has already cut key rates to almost zero, is meeting in Washington this week and is expected to give its forecast for Tuesday afternoon, as well as announce further plans to strengthen the American economy.