US economy shrinks 31.4% in 2nd quarter

WASHINGTON • The United States economy contracted at an annual rate of 31.4 per cent in the second quarter amid a mounting Covid-19 fallout.

This is 0.3 percentage point higher than the previous estimate in late August, the US Commerce Department said in its third and final estimate released yesterday.

The upward revision with the latest estimate primarily reflected an upward revision to personal consumption expenditures (PCE) that was partly offset by downward revisions to exports and to non-residential fixed investment, according to the department's Bureau of Economic Analysis.

The decrease in real gross domestic product (GDP) in the second quarter reflected decreases in PCE, exports, non-residential fixed investment, private inventory investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending, the report showed.

The advance estimate of GDP released in late July showed that the US economy contracted at an annual rate of 32.9 per cent in the second quarter.

In the first quarter of this year, US real GDP shrank at an annual rate of 5 per cent. As businesses have reopened and millions of jobs have been regained, economists believe that the US economy will rebound in the third quarter, while noting that more fiscal relief is needed to sustain the economic recovery.

"While the economy has been doing better than expected, I think there's downside risk to that if there is no further fiscal support," US Federal Reserve chairman Jerome Powell said recently, at a hearing before the Senate Banking Committee.

The central bank chief noted both employment and overall economic activity remain well below their pre-pandemic levels, and the country still has 11 million unemployed, out of the 22 million who were laid off in March and April amid Covid-19 shutdowns.

The median projection for the unemployment rate is 7.6 per cent at the end of this year, and 4 per cent by the end of 2023, according to the Federal Reserve's latest economic projections.

This is still above the historic low of 3.5 per cent the country experienced before the Covid-19 pandemic.

Meanwhile, Democratic and Republican lawmakers remain deadlocked on the next round of relief roughly two months after the extra US$600 (S$820) per week federal unemployment benefits - part of a US$2 trillion relief package approved by Congress in late March - expired at the end of July.

Amid growing doubts about the two sides' willingness and ability to break the impasse, US House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin resumed their talks earlier this week over a US$2.2 trillion relief package newly proposed by House Democrats.

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A version of this article appeared in the print edition of The Straits Times on October 01, 2020, with the headline US economy shrinks 31.4% in 2nd quarter. Subscribe