America's Economic Pandemic
GDP plummeted 4.8% with worse to come, while jobless claims top 30 million.
Two more pieces of terrible but expected economic news hit this week: GDP dropped in the first quarter by an annual rate of 4.8%, ending the longest expansion on record, while jobless claims exceeded 3.8 million, bringing the six-week total to 30.3 million. Ouch.
Drilling down, it gets even worse. We’ll start with the jobless claims. Though 3.8 million is actually the fewest in a week since the pandemic shutdown began, it’s still roughly six times as many as the worst week on record before March. And the real number is higher still. CNBC reports, “The Economic Policy Institute earlier this week estimated that the current claims level probably undercounts by as much as 12 million those who are eligible for benefits but not getting them due to the inability to file or other roadblocks.” In other words, the real jobless number could be north of 42 million, all in a span of about six weeks.
April’s jobs report comes out on May 8, and it will likewise be appallingly bad, with a double-digit unemployment rate. Recall that we warned the abysmal March report did not actually reflect most of the damage.
That same warning holds true for Wednesday’s report on first-quarter GDP. The U.S. economy shrank by 4.8% … by March 31. Most of the economic contraction actually happened in April, which means that unless there’s the biggest “V-shaped” recovery you’ve ever imagined, the drop in second-quarter GDP could dwarf the first quarter. “Economists vary in their estimates of how much more the economy will shrink through June,” says The Wall Street Journal. “The optimists say 20%-30% year over year, but minus-50% isn’t an outrageous bet.” The Congressional Budget Office projects a decline of 40%. By definition, a recession is at least two consecutive quarters of economic decline.
Virtually every sector of the economy contracted, led by the healthcare sector, which seems rather ironic until you consider that all “elective” procedures were halted. The contraction did not apply to government, however, which contributed 0.13% growth to the economy in Q1 with its nearly $3 trillion spending spree. The Beltway is abuzz with grandiose ideas for even more. Bigger government is, after all, always here to stay.
Correction: The jobs report will come out May 8, not May 1 as previously stated.