• The U.S. economy plummeted 32.9% in the second quarter – the largest decline in recorded history
  • Consumer spending, as measured by personal consumption expenditures, plunged by 34.6% in the second quarter
  • 1.434 million new unemployment claim filings last week

The U.S. economy plummeted 32.9% in the second quarter – the largest decline in recorded history as the COVID-19 pandemic and related lockdown closed untold numbers of businesses and put millions of people out of work.

The second quarter plunge in gross domestic product was more than three times greater than the previous record-holder – a 10% decline in the first quarter of 1958.

Nariman Behravesh, chief economist at IHS Markit, told NPR the second quarter plunge was "horrific," adding that: "We've never seen anything quite like it."

The Bureau of Economic Analysis said the huge decline in second quarter 2020 GDP reflected the “response to COVID-19, as stay-at-home orders issued in March and April were partially lifted in some areas of the country in May and June, and government pandemic assistance payments were distributed to households and businesses. This led to rapid shifts in activity, as businesses and schools continued remote work and consumers and businesses canceled, restricted, or redirected their spending.”

Consumer spending, which represents about two-thirds of the U.S. economy (as measured by personal consumption expenditures) plunged by 34.6% in the second quarter, following a 6.1% decline in the first quarter.

“In contrast to prior recessions, where plunging investment and inventories have usually been the biggest drivers, the coronavirus downturn has been mainly the result of an unprecedented collapse in consumption as lockdown measures imposed in late March forced consumers to stay at home,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, said last week.

Heather Long, economics correspondent at the Washington Post, tweeted after the second quarter GDP numbers were released: “This is the result of the Great Lockdown. It was done to fight the coronavirus, but at a great cost.”

She added: “Business investment plummeted. Consumer spending on services plummeted. [Government] spending was one of the only positives in the quarter.” chief financial analyst, Greg McBride, commented: “It was an epically bad second quarter and we got our first look at just how bad… The economy continues to set records for all the wrong reasons.”

McBride further noted that there were 1.434 million new unemployment claim filings last week, up slightly from the prior week, and more than 17 million continuing unemployment claims.

“Not to be overlooked were an additional 829,697 filings from self-employed and freelance workers covered under Pandemic Unemployment Assistance,” he added. “There [were] more than 30 million people receiving unemployment benefits in all programs as of July 11. The virus spread and economic rollbacks in the weeks since do not bode well for the labor market in the weeks and months ahead.”

As Democrats and Republicans in Washington wrangle over details of the next stimulus package, McBride warned that the looming expiration of federal unemployment benefits “without a clear-cut replacement threatens a chunk of consumer spending power that has sustained households and made its way back into the economy.”

Kathy Jones, chief fixed income strategist at Schwab Center for Financial Research, tweeted that while “terrible,” the second quarter GDP was “old news.” What is more urgent now, she said, is that the labor market is “slipping backwards” while “Congress debates how to ‘encourage’ people to go back to work.”

Indeed, a crucial part of federal stimulus – an extra $600 in weekly unemployment benefits – is due to expire on Friday. In the new stimulus plan, Senate Republicans have proposed cutting that figure down to $200, which Democrats have rejected as insufficient.

The U.S. unemployment rate, which reached nearly 15% in April, came down to about 11.1% in June – but that latter figure still exceeds the joblessness figure of any prior postwar recession period.

Josh Lipsky, director of programs and policy at the Atlantic Council's global business and economics program, said the grim GDP report should serve as a “wake-up call” to Congress.

“The American economy has never had to climb out of such a deep hole and it will be impossible to do so without immediate help,” Lipsky said. “These [GDP and unemployment] numbers represent millions of jobs lost and lives changed forever. … Right now, temporary layoffs are turning into permanent job losses and families across the country. ... Next week’s jobs report will likely show that the rebound in [the third quarter] is stalling out.“

Lipsky further warned that the U.S. must get the COVID-19 pandemic under control.

“[The GDP numbers] are a warning of what will happen if we fail to get the virus under control,” he said. “The health of the economy is dependent on the health of the American workforce.”

Behravesh of IHS Markit concurred.

"Until we get the virus under control, we're going to need more [government] help," he told NPR. "Our view is that we're not going to get to the pre-pandemic levels of economic activity until sometime in 2022."

Meanwhile, more than 4 million Americans have now been infected by the coronavirus, while the death toll has exceeded 150,000.

“This is something we have never seen before,” Jason Reed, assistant chair of finance at the University of Notre Dame told the Guardian. “At first I felt it was like a natural disaster that had hit the entire country at the same time. Now it is evolving into something worse than that.”

The U.S. stock market reacted negatively on Thursday to the double-barrel dose of bad economic news. As of 10:55 a.m., the Dow Jones Industrial Average was down more than 450 points.