News Coronavirus US economy ‘speeds towards cliff’ with worst plunge on record

US economy ‘speeds towards cliff’ with worst plunge on record

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The US economy has suffered its worst quarterly plunge ever as millions of people lose their jobs and the COVID-19 pandemic shatters consumer and business spending.

The 32.9 per cent downturn in the April-June quarter is the deepest decline since records began and is three times more severe than the previous record of 1958.

But President Donald Trump’s campaign has shrugged off the slump in gross domestic product, saying the economy is “rebounding” – and instead raised the prospect of delaying November’s presidential election.

As the US grapples with an out-of-control virus with more than 4.4million infections, more than 1.4 million people a week filed for unemployment benefits in the past fortnight.

Federal Reserve chair Jerome Powell warned the economic decline, which has wiped out more than five years of growth, was “the most severe in our lifetimes”.

The US central bank has kept interest rates near zero and pledged to continue pumping money into the economy.

Unemployment claims in California have reached a three-month high. Photo: Getty

The bulk of the deepest contraction in at least 73 years came in April, when activity almost ground to an abrupt halt.

Restaurants, bars and factories, among others, were shuttered in mid-March to slow the spread of coronavirus.

With the recovery faltering, pressure is mounting for the White House and Congress to agree on a second stimulus package.

But Mr Trump, who is trailing Democratic challenger and former vice president Joe Biden in opinion polls, said he was in no hurry.

The President also raised the possibility of delaying the November 3 election, an idea that has been rejected by those within his own Republican party.

Senate majority leader Mitch McConnell said the election would go ahead as scheduled and House Republican leader Kevin McCarthy rejected the suggested delay out of hand.

“Never in the history of the federal elections have we ever not held an election, and we should go forward with our election,” said Mr McCarthy, a Trump ally.

Mr Biden blamed a leadership failure, and urged “a massive public health response to save lives and get our economy back up to speed”.

Economy speeding towards cliff

Jason Reed, finance professor at the University of Notre Dame’s Mendoza College of Business, said the government’s response was hard to swallow.

“Right now, the American economy is speeding toward a fiscal cliff. Not only do we need Americans to take serious action preventing the spread of the disease, but we also need Congress to agree on another stimulus package and quickly,” he said.

US GDP collapsed at a 32.9 per cent annualised rate last quarter, the deepest decline in output since the government started keeping records in 1947.

A sign outside a church amid rising need due to unemployment. Photo: Getty

The drop in GDP was more than triple the previous all-time decline of 10 per cent in the second quarter of 1958.

The economy contracted at a 5.0 per cent pace in the first quarter. It fell into recession in February.

Economists polled by Reuters had forecast GDP slumping at a 34.1 per cent rate in the April-June quarter.

On a year-on-year basis, US GDP fell a record 9.5 per cent last quarter.

Output shrank 10.6 per cent in the first half. The level of GDP has dropped to levels last seen in the last quarter of 2014.

Though activity picked up starting in May, momentum has slowed amid the explosion of COVID-19 infections, especially in the densely populated south and west, where authorities in hard-hit areas are closing businesses again and pausing reopenings.

That has tempered hopes of a sharp rebound in growth in the third quarter.

-with AAP