The longest US economic expansion is over – and the deepest recession in at least eight decades has begun


GDP drops 4.8%, consumer spending falls the most since 1980, business investment falls to its lowest level in 11 years

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The record US economic expansion is over after nearly 11 years, the deepest recession in at least eight decades is now underway.
The world’s largest economy shrank at an annualized rate of 4.8% in the first quarter, the biggest decline since 2008 and the first contraction since 2014, as the need to fight the coronavirus forced businesses to close and consumers to stay home.

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The slowdown, reported by the Commerce Department on Wednesday, was driven by the biggest drop in consumer spending since 1980 and the fastest decline in business investment in nearly 11 years.

The worse-than-expected report reveals the large-scale impact of U.S. production from COVID-19 and the subsequent freeze in economic activity.
The current quarter is expected to be much worse, with analysts expecting the economy to tumble by a record amount in data dating back to the 1940s. Bloomberg Economics forecast a 37% annualized contraction, but UniCredit is the most bearish with an estimate of 65%.

Crisis, recovery

This will end an expansion that began in mid-2009 when the economy began to recover from the financial crisis. Since then, gross domestic product has risen by $7 trillion and unemployment has fallen to 3.5%, its lowest level in five decades, although some have questioned how far the benefits have been distributed with a increasing concentration of wealth at the top and wages rising at a relatively tepid pace for most of the expansion.

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The pain is being felt around the world, with China already reporting a sharp decline in output and the eurozone set to report grim numbers on Thursday.

As the U.S. government and states debate when and how quickly to lift restrictions on businesses and schools, considerable doubts remain about how long the economic downturn will last and what shape the recovery will take.

Early hopes of a quick rebound have faded, with most analysts assuming a jump in activity once the virus passes will be followed by a slower recovery in growth. So far, many data points are signaling growing contraction, while others have shown slight improvement, according to a Bloomberg Economics tracker.

Consumer mistrust

Despite massive government handouts and near-zero interest rates, businesses large and small are at risk of bankruptcy, while consumers may remain cautious about going to shops and restaurants due to health problems, higher debt and job insecurity.

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Another big question is how the recession is affecting the re-election chances of President Donald Trump, who recently pushed for the removal of constraints after losing the ability to operate with a strong economy.

At the Federal Reserve, which has cut rates and rolled out a slew of emergency and unprecedented lending programs, Chairman Jerome Powell and his colleagues are trying to limit the virus’ damage to jobs and businesses while setting the conditions for recovery.

They wrap up a two-day meeting later on Wednesday, with an expected 2 p.m. statement in Washington and a 2:30 p.m. press conference from Powell.

While two quarters of contraction are considered by most to be a recession, the official call in the United States comes from the Business Cycle Dating Committee, a panel of economists from the National Bureau of Economic Research. They look at a wide range of indicators, including consumer spending, employment, and GDP.

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The scan may take some time. During the last recession, which became the longest since World War II, the committee did not make a decision for nearly a year after the recession began.

Either way, the GDP numbers underscore what is already clear from government data showing 26 million Americans filing for unemployment, along with drops in retail sales and factory output.

The contraction in GDP in the first quarter – the first decline since a 1.1% decline in 2014 – compared to the median projection of a 4% fall in a Bloomberg survey of economists. In January, analysts were expecting growth of 1.6%.

Spending habits

Consumer spending, which had already started to slow in the second half of 2019, fell at a rate of 7.6%. Changing consumer habits were evident in the report, as the biggest increase since 2003 in spending on non-durable goods such as food was more than offset by the biggest drop in purchases of durable goods in more than 11 years. .

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Consumption is expected to be much weaker in the second quarter because broader government measures, including restaurant and store closures, did not begin in earnest until mid-March and are continuing today in large part of the United States.

Business investment, already down for three straight quarters as the U.S.-China trade war kept businesses guessing, was also hit hard. Companies have slowed down their spending on structures and equipment. Investments in software have increased, however, potentially reflecting efforts to help employees work from home.

Services exports saw the largest decline since 1975, reflecting a drop in the number of international travelers coming to the United States

First-quarter GDP figures will be revised several times, and some economists generally expect the reading to get weaker as more data and adjustments are made.



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