Recent data published by the Commerce Department indicates that the American economy contracted by 4.8 percent in the first quarter of 2020.
This comes at a time when the Wuhan virus pandemic compelled millions of American businesses to shut down, thus putting millions of Americans out of work. The 2020 first quarter is the worst quarter of GDP growth for the U.S. since 2009.
Following two months of solid economic indicators and rising levels of consumer confidence, the Wuhan virus completely shook America from February to March. The first-quarter reduction in GDP was largely driven by the millions of layoffs and business shutdowns that took place under social distancing orders from local governments and guidelines that President Trump recommended.
“This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending,” wrote the Bureau of Economic Analysis, calling attention to how “the full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020.”
More than 30 million Americans have filed new applications for unemployment benefits since the middle of March, according to a report from Labor Department. This likely pushed the unemployment rate from 3.5 percent in February to slightly above 20 percent in April. Thousands of businesses’ fates are hanging in the balance as they shut down their doors or scale back their operations
Consumer spending took a big hit. This kind of spending makes up approximately two-thirds of GDP and plummeted at an annualized rate of 7.6 percent in the first quarter. The Hill noted that “Spending on durable goods such as appliances, electronics and furniture sunk 16.1 percent, while spending on food, cleaning products and other short-use purchases rose 6.9 percent as Americans stocked up.”
Spending on services crashed by 10.2 percent after increasing by 2.1 percent throughout 2019, and business investment dropped by 8.6 percent after experiencing a steady decline in 2019.
“Economic growth remained firm in January and February but was sharply curtailed in March as much of the country gradually came under stay-at-home orders in response to the Covid-19 pandemic,” stated Cailin Birch, global economist at the Economist Intelligence Unit, in a research noted that she published on April 28, 2020.
“The real figure to watch will be second-quarter GDP, as much of the negative economic impact will be felt in April-June. Early indicators are flashing strongly negative,” Birch added, alluding to marked declines in automobile and plane fuel purchases.
There must be a re-opening of the U.S. economy.
Jobs give people not only quantitative benefits but a sense of purpose.
By staying out of work potentially for multiple months, millions of Americans will become restless and potentially engage in disruptive activities.
The Trump administration must act now and create constructive policies that reopen the economy. If not, social unrest will likely follow throughout America.