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News Aug. 4, 2020

U.S. economy contracts at fastest quarterly rate on record

The U.S. economy contracted 9.5% during the second quarter of 2020 amid the COVID-19 crisis—the fastest the quarterly rate has fallen in modern recordkeeping, according to The Washington Post.

Economists say the second quarter shows what is at stake if the signs of recovery from earlier this summer disappear. As Congress clashes over another stimulus bill and COVID-19 forces more states to shut down bars and restaurants again, there is fear economic recovery could continue to be delayed.

On July 30, the government also reported jobless claims increased again during the week of July 20 to 1.4 million, another sign of a stalling recovery.

GDP shrank at an annual rate of 32.9%, according to the Bureau of Economic Analysis. Although it typically emphasizes the annualized rate, that figure reportedly is less useful this quarter because the economy is unlikely to experience another collapse as it did in the second quarter.

With retail stores closed and people working at home, clothing and footwear sales dropped. The pandemic also triggered a collapse in oil prices, made worse by lower gasoline sales and dampened transportation services as Americans stayed home and avoided commutes or basic errands. Additionally, health care employment declined as people cancelled non-emergency visits and procedures, triggering layoffs.

One strong spot has been the housing market as wealthier Americans take advantage of cheap mortgage rates and buy larger homes. In addition, real disposable personal income rose nearly 10%; however, that mostly is a result of direct stimulus checks and enhanced unemployment benefits under the CARES Act.

On July 29, Federal Reserve Chair Jerome H. Powell warned the most recent surge in COVID-19 infections has begun to weigh on the economy and emphasized a recovery cannot be sustained unless the virus is under control.

Until now, no quarter in the modern era of GDP measurement, which began in 1947, had seen a decline of even 3%.

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