American gross domestic product (GDP) fell 4.8% in the first quarter of 2020 on an annual basis, according to provisional figures released by the US Department of Commerce. This is the sharpest decline since the 2008 recession. This figure, which needs to be refined twice more, takes into account the downturn in the American economy, which began in early March on the West Coast, in California and the Seattle area, and mid-March on the east coast, with the closing of schools in New York, the epicenter of the coronavirus epidemic.
Growth was 2.1% in the fourth quarter of 2019 and 2.3% for the full year.
26 million unemployed
In detail, consumption fell by 7.6%, with a collapse in purchases of durable goods (-16%), especially in the automobile. The consumption of services fell by 10%, with the closure of restaurants and all cultural and sporting activities. Investment was also down 5.6%, with a decline of more than 15 points in capital goods. The 8.7% drop in exports can be explained, in particular, by the decline in services (- 29.8%), in particular transport. Imports of goods and services fell 15%. The only increase concerns public spending, which increased by 0.7 point compared to the previous quarter.
The 4.8 point contraction in the economy can be explained by a 5.26 point drop in consumption and a 0.96 point drop in investment. Trade contributed 1.3 points to growth positively (fall less in exports than imports) and the government, whose spending has not fallen, by 0.13 points.
Household disposable income increased by 0.5 point (after 1.6 in the last quarter of 2019), mainly due to government spending. In times of crisis, the household savings rate increased from 7.6% to 9.6%.
Observers predict an even more drastic fall in the second quarter, with the shutdown of almost all of the US economy in April and its attempt at deconfinement planned for May. This crisis has resulted in an unprecedented surge in unemployment, with more than 26 million Americans – out of an estimated 165 million working population – registered unemployed in four weeks.
Support measures and some failures
To avoid a social catastrophe worthy of the 1930s, the federal government, with the joint support of the Republicans and the Democrats, voted a federal unemployment benefit of 2,400 dollars (2,209 euros) per month, until 'autumn. In addition, there is a federal check for $ 1,200 per person, provided you earn less than $ 75,000 a year, plus $ 500 per child. The funds arrive gradually.
Finally, Washington has released $ 660 million (608 million euros) in loans that may be non-repayable to SMEs, provided that they retain their employees. This policy has seen some hiccups, due to the failure of computer servers and the behavior of many institutions, such as Havard University, the chain of burgers Shake Shack or the basketball team Los Angeles Lakers, supposed to be successful, who asked for and got taxpayer money. These support measures will appear for the second quarter.
This GDP figure is published as the US Federal Reserve (central bank, Fed) completes its two monthly meeting days on Wednesday. In two cases, it lowered its key rates to a level between 0% and 0.25% to stem the crisis and flooded the market with liquidity. Fed President Jerome Powell is expected to repeat his commitment to support the economy. Wall Street was to open higher, confident of the support of Mr. Powell.
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