Economy shrinks 4.8% as coronavirus pandemic hits

WASHINGTON — Devastated by the coronavirus, the U.S. economy is sinking. And the plunge is accelerating.

Now, as some businesses in a few states start to trickle back to work, hopes are beginning to arise that the economy, damaged as it is, might be poised to rebound by the second half of the year.

Yet most economists have the same response: Keep expectations in check.

Among their concerns is that the coronavirus could flare up again after the economy is re-opened, forcing reopened businesses to shut down again. Another is that people — employees and consumers alike — will remain too wary of contracting the coronavirus to return to anything resembling normal economic behavior.

“The virus has done a lot of damage to the economy, and there is just so much uncertainty now,” said Mark Zandi, chief economist at Moody’s Analytics.

The U.S. economy shrank at a 4.8% annual rate in the January-March quarter, the government estimated Wednesday, as the coronavirus pandemic shut down much of the country and began triggering a recession that will end the longest expansion on record.

Yet the drop in the first quarter will be only a precursor of a far grimmer report to come on the current April-June period, with business shutdowns and layoffs striking with devastating force.

With much of the economy paralyzed, the Congressional Budget Office has estimated that economic activity will plunge this quarter at a 40% annual rate.

That would be, by a breathtaking margin, the bleakest quarter since such records were first compiled in 1947.

The Commerce Department said that the gross domestic product, the total output of goods and services, posted a quarterly drop for the first time in six years. And it was the sharpest fall since the economy shrank at an 8.4% annual rate in the fourth quarter of 2008 in the depths of the Great Recession.

“The longest U.S. economic expansion has ended,” said Gregory Daco, chief economist at Oxford Economics.

The Federal Reserve signaled Wednesday that it will keep its key short-term interest rate near zero for the foreseeable future as part of its extraordinary efforts to bolster the economy.

Fed Chariman Jerome Powell suggested that given the depth of the U.S. economic catastrophe, with perhaps 30 million people having lost jobs in the past six weeks, it will “probably will take some time for us to get back to a more normal level of employment and ultimately maximum employment.”

Zandi said he thought any prospects for a recovery will hinge on the eventual availability of a coronavirus vaccine. He doesn’t expect the economy to regain its footing on a sustained basis until perhaps mid-2021 — and that assumes that a vaccine would be ready for use by then.

“I would characterize this period as going through quicksand until we get a vaccine,” Zandi said.

from Boston Herald https://ift.tt/3aVyxYZ