Economic output fell at its fastest pace on record last spring as the coronavirus pandemic forced businesses across the United States to close their doors and kept millions of Americans shut in their homes for weeks.
Gross domestic product — the broadest measure of goods and services produced — fell 9.5 percent in the second quarter of the year, the Commerce Department said Thursday. On an annualized basis, the standard way of reporting quarterly economic data, G.D.P. fell at a rate of 32.9 percent.
G.D.P. shrank $1.8 trillion in the 2nd quarter.
Gross domestic product, adjusted for
inflation and seasonality, at annual rates
G.D.P. shrank $1.8 trillion in the second quarter.
Gross domestic product, adjusted for inflation and seasonality, at annual rates
The collapse was unprecedented in its speed and breathtaking in its severity. The only possible comparisons in modern American history came during the Great Depression and the demobilization after World War II, both of which occurred before the advent of modern economic statistics.
Unlike past recessions, this one was a result of a conscious decision to suspend economic activity to slow the spread of the virus. Congress pumped trillions of dollars into the economy to sustain households and businesses, limit long-term damage and allow for a rapid rebound.
The plan worked at first. In recent weeks, however, cases have surged in much of the country. Data from public and private sources indicate a pullback in economic activity, reflecting consumer unease and renewed shutdowns.
“In another world, a sharp drop in activity would have been just a good, necessary blip while we addressed the virus,” said Heather Boushey, president of the Washington Center for Equitable Growth, a progressive think tank. “From where we sit in July, we know that this wasn’t just a short-term blip.”
The number of Americans filing new claims for state unemployment benefits totaled 1.43 million last week, the Labor Department reported Thursday.
It was the 19th straight week that the tally exceeded one million, an unheard-of figure before the coronavirus pandemic. And it was the second weekly increase in a row after nearly four months of declines, a sign of how the rebound in cases has undercut the economy’s nascent recovery. Claims for the previous week totaled 1.42 million.
New claims for Pandemic Unemployment Assistance, the government’s program aimed at covering freelancers, the self-employed and other workers not covered by traditional unemployment benefits, totaled 830,000, down from 975,000 the week before. Those numbers, unlike the figures for state claims, are not seasonally adjusted.
Initial weekly unemployment claims,
both regular and those under the Pandemic Unemployment Assistance program
Initial weekly unemployment claims, both regular and those under the Pandemic Unemployment Assistance program
“We’re still in a desperate situation,” said Diane Swonk, chief economist at the accounting firm Grant Thornton in Chicago. Noting that weekly claims were in the 200,000 range before the pandemic brought widespread shutdowns in March, she added, “This is unique in terms of the speed and magnitude of the job losses.”
What’s more, fears are growing that after rebounding strongly in May and June, the economy has run out of steam, with many states reversing the reopening of businesses.
“Everyone wants to keep putting on rose-colored glasses, but it’s blinding us to the reality of the situation and what we have to deal with,” Ms. Swonk said.
At the same time, the $600 supplemental weekly unemployment payment from the federal government is ending, a potentially crippling financial blow to millions. Republicans have proposed replacing the supplement with a $200 weekly payment, while Democrats want to extend it in full. “We’re nowhere close to a deal,” Mark Meadows, the White House chief of staff, said Wednesday.
At Bank of the West in San Francisco, Scott Anderson, the chief economist, is watching the jobless claims data for clues about the direction of California’s economy.
New claims for state unemployment benefits fell by more 40,000 last week, not accounting for seasonal adjustments, but Mr. Anderson said, “I’d be careful about reading too much into that decline.” The number of Californians collecting unemployment has been rising, he noted, “and I think we could definitely see an increase in the weeks ahead, given the closures across the state.”
California is not only the nation’s most populous state, Mr. Anderson noted, but also accounts for about 14 percent of the country’s economic output.
Like many states, it has been pulled in opposite directions. A resurgence in coronavirus cases forced many businesses that had reopened to close for a second time in early July. Bars, gyms, indoor dining and family entertainment centers were affected in many parts of California, a move that came as a surprise to proprietors who had high hopes when they reopened their establishments.
“There is a lot of angst among small-business owners because they spent a lot of money trying to reopen and then they had to close again,” Mr. Anderson said. “There is a question of whether these businesses are going to reopen at all.”
Even a second round of federal loans under the Paycheck Protection Program, as is being discussed in Washington, may be too little, too late, Mr. Anderson said. “I think there are definitely some dark clouds on the horizon,” he said.
Consumer spending, the bedrock of the U.S. economy, plunged 10.1 percent in the second quarter, the Commerce Department reported Thursday. It was by far the biggest drop on record. But the decline wasn’t across the board — and the details help paint a picture of life in a pandemic.
Spending on services fell 13.3 percent, led by a near-total collapse in spending on restaurant meals and recreation, the department’s report on quarterly economic output noted. Health care spending fell sharply, too, as patients canceled elective procedures and delayed routine care.
Spending on goods was a different story. Overall goods expenditures fell a modest 3 percent, and some quarantine-friendly categories actually had increases. Spending on recreational vehicles and related goods rose nearly 9 percent as consumers sought ways to travel without getting on airplanes.
Other parts of the economy showed large contractions. Business investment, residential construction and trade — both imports and exports — all fell by double-digit percentages. One exception: Spending by the federal government rose 4.1 percent as Congress moved to prevent deeper economic damage. (That figure reflects only a small fraction of the government stimulus efforts, much of which are considered “transfer payments” that aren’t counted in gross domestic product.)
This was the year that Louise Francis was finally going to make $20 an hour. Instead, she is out of work and worrying about how she will pay her bills.
Ms. Francis, 59, has worked as a banquet cook at the Sheraton Hotel in New Orleans for nearly two decades. She earned $19.37 an hour, and was on track to get a raise in August. But when the hotel shut down last spring, Ms. Francis was furloughed, and she hasn’t worked since.
It took three months of effort to get her first unemployment check, and she relied on her adult daughters for help in the meantime. But when she began receiving the money, a $600 weekly federal supplement to regular state benefits allowed her to find some stability.
“With the $600, you could see your way a little bit,” Ms. Francis said. “You could feel a little more comfortable. You could pay three or four bills and not feel so far behind.”
With the supplement at an end and no congressional consensus on replacing it, Ms. Francis isn’t sure what she will do. Her age, combined with her diabetes and high blood pressure, put her at high risk of severe illness if she contracts the coronavirus, which makes her reluctant to take any job that puts her into face-to-face contact with the public, especially with cases surging in Louisiana.
Ms. Francis’s husband is retired, leaving her as the family’s breadwinner, and she will have to get by on $247 a week in state benefits.
“If they take that $600 from us, how am I supposed to be able to continue paying my bills?” she said. “You still have to eat, to pay insurance. If they take it away, they’re going to push us back into poverty.”
Stocks slid on Thursday as economic reports from the United States and Germany showed the toll of the coronavirus outbreak on growth and investors absorbed a flood of earnings reports.
The S&P 500 fell more than 1 percent, while shares in Europe were down by more than 2 percent.
Oil prices were also sharply lower, as were shares of energy companies. ConocoPhillips was among the worst performing stocks in the S&P 500 after the company said its earnings plunged by more than analysts had expected.
Financial stocks, closely tied to the cyclical ups and downs of the American economy, slumped too, as long-term interest rates — set by the yields on government bonds — continued to plumb some of the lowest levels in history.
The yield on the 10-year Treasury note fell to 0.55 percent on Thursday morning. Such yields help set the price of the loans banks make and significantly influence their profitability.
The U.S. economy shrank by 9.5 percent in the second quarter, while Germany’s economy shrank by 10.1 percent. On an annualized basis, the standard way of reporting quarterly economic data, U.S. gross domestic product fell at a rate of 32.9 percent, which is the sharpest drop on record.
Data released at the same time showed that 1.43 million Americans filed new state unemployment claims, the second week in which that number has risen and a figure that highlights the persistence of the economic downturn.
The grim data came a day after Jerome H. Powell, the Federal Reserve chair, told reporters that the “pace of recovery looks like it has slowed,” pointing to debit and credit card spending and hiring trends. He added, “The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in keeping the virus in check.”
Stock investors are also considering a number of earnings reports from companies in the United States and Europe. The largest technology companies, including Apple, Facebook, Alphabet and Amazon, which often set the direction of the broad market because of their sheer size, are scheduled to update their results after the end of trading Thursday.
The German economy shrank 10.1 percent from April through June compared to the previous quarter, the biggest decline since the government starting keeping the data in 1970.
But the figure, which covers the peak period of pandemic lockdowns, may already be old news. Surveys of business managers indicate that Europe’s largest economy is rebounding quickly, though it will probably be months or years before growth returns to normal, and the risk of further setbacks is high.
The German labor market stabilized in July, according to data published Thursday by the nation’s labor office. The number of unemployed people fell by 18,000 after rising sharply from April through June. But joblessness could rise later in the year if many businesses founder, and workers who are now on furlough become unemployed.
Germany is in a better position than other European Union countries like Italy or Spain, in part because the government was effective in containing the spread. At the same time, new infections of the coronavirus are rising again as Germans return from holidays abroad, and there is fear of a second wave.
The pandemic has left deep scars on the German economy even if the pain is less severe than in many other countries, including the United States.
About 7 million people in Germany are on government-subsidized paid furloughs, and not all will get their jobs back. Companies like the automaker Daimler and Deutsche Bank are cutting their workforces permanently in response to changes in their industries that go beyond the pandemic.
Its stock price is up, for starters. Shares in the photography pioneer have soared in recent days, following the news that it won a federal loan on Tuesday to produce ingredients for coronavirus treatments.
The timing of the trading has aroused suspicion. Some have cried foul, pointing to heavy trading volumes ahead of the official announcement about the government loan. The Wall Street Journal reports that there is an explanation: Kodak had briefed news outlets in its hometown, Rochester, N.Y., but neglected to say that the information was not for public reporting at the time. Some of those tweets and stories were deleted shortly after posting, but not before eagle-eyed traders saw the news.
Momentum begets momentum, and perhaps unsurprisingly, Kodak shares have become a favorite of speculative day traders on the Robinhood app, where nearly 79,000 users added the stock to their portfolios in just 24 hours. Kodak’s stock is now trading 17 times higher than it was at the end of last week, representing a potential second act for a company that was struggling to find a new direction.
Comcast, the largest cable operator in the U.S., reported on Thursday $23.7 billion in revenue and $7.9 billion in adjusted profit for the second quarter, beating expectations. Here are the highlights:
Peacock, its new streaming product, attracted 10 million sign-ups in its first three months. It differs from other platforms like HBO Max (which netted 4.1 million in one month) and Netflix in that it is free and relies on advertising for revenue. (There is a paid tier that features more content but still includes ads.) The strategy is reminiscent of the original broadcast system, which is also free. Comcast hopes to have 35 million users by 2024.
With most of the country under lockdown, Comcast added 323,000 more broadband customers, but it lost 477,000 pay TV subscribers. People switched to cheaper streaming alternatives as wallets tightened under the pandemic. It’s not a bad trade for Comcast, since a broadband subscriber tends to add more profit than a video one.
At NBCUniversal, the lack of sports and the shutdown of movie theaters and theme parks hurt the division. Sales fell 25 percent to $6.1 billion. Theme parks took a $399 million loss for the quarter, and the Universal Studios division saw sales decline nearly a fifth to $1.2 billion.
But a significant deal was struck this week between Universal and AMC Entertainment, the nation’s largest theater chain, that could recast the economics of the film industry. The studio can now sell movies on streaming 17 days after it runs in theaters, collapsing the usual 90-day window. Movies tend to make most of its box office dollars in the first two weekends, so the new terms appear to benefit the studio. In other words, there will be more reasons to stay home.
The consumer goods giant Procter & Gamble reported strong demand for products like dishwashing detergent, disinfectants and cough suppressants, causing revenue to rise 4 percent to $17.7 billion in its fourth quarter, while net income rose to $2.8 billion from a loss of $5.2 billion a year earlier.
Sales increased throughout the company — which produces Charmin toilet paper, Pampers diapers, Tide detergent and Vick’s cough medicine — with the exception of its grooming division. A “pandemic-related reduction in shaving frequency,” caused Gillette sales to drop, according to the company, whose earnings call included discussion of the rising popularity of mullets and “coronabeards.” The skincare brand SK-II, a staple at airport retailers, took a hit as the crisis disrupted customers’ travel plans.
Procter & Gamble, one of the largest advertisers in the world, increased spending on marketing 2.7 percent in its fourth quarter, which ended June 30. But other earnings reports on Thursday showed a wait-and-see attitude toward advertising spending:
The beverage company Molson Coors said it is “preserving the biggest firepower in our marketing budgets so they can be ramped up in the back half of the year when we expect they will be most effective” following “significant reductions in spend” in the most recent quarter.
Mastercard’s advertising and marketing spending sank nearly 59 percent in the quarter, to $93 million.
JCDecaux, an outdoor advertising company that manages ads on billboards, benches, buses and more, said revenue tumbled nearly 65 percent in the quarter amid a “temporary historic drop in urban and transport audiences.”
Royal Dutch Shell and Total, two of Europe’s largest oil companies, reported sharply lower quarterly profits on Thursday, after widespread lockdowns designed to tackle the pandemic slammed demand for oil and gas.
Despite the difficult conditions, the companies are still investing in their operations, by shifting into wind and solar and other clean-energy businesses in response to pressures from investors and European governments to lower greenhouse gas emissions. Total, for instance, has almost doubled its capacity to generate electricity via renewable means over the last year.
The trading of crude oil and products saved Shell from a loss on the metric called adjusted earnings that is most widely followed by analysts. Shell, based in The Hague, earned $638 million, an 82 percent fall from a year earlier. It took advantage of the volatile market conditions to earn $1.5 billion in trading, almost 30 times what it made a year earlier.
Total, based in Paris, was also squeezed by market conditions and reported adjusted net income of just $126 million, a 96 percent fall from a year earlier.
With both the pandemic and climate change concerns raising questions about future earnings, companies are reviewing assets like oil fields and refineries to see if their values need to be marked down. This exercise led Shell to take a $16.8 billion writedown and report an $18.1 billion net loss. Total is taking $8 billion in writedowns, mostly on Canadian tar sands properties whose reserves may wind up “stranded” or never produced.
To understand the roller coaster ride of the coronavirus economy, look at the experience of Russian River Brewing Company in Sonoma County, Calif.
Before the pandemic, half the company’s revenue came from retail sales: food and drink at its two brew pubs, tours and tastings at the brewery itself, in-person purchases of bottled beer. When California ordered restaurants to shut down in mid-March, all of that revenue disappeared.
“We were panicking for 48 hours,” said Natalie Cilurzo, who owns Russian River with her husband, Vinnie.
But after the panic passed, determination set in. They furloughed about 140 of their roughly 200 employees and cut the hours of many of the rest. They stopped kegging beer and started putting everything into bottles that they could sell in grocery stores. They began selling online.
“We just felt like we were in start-up mode all over again,” Ms. Cilurzo said.
It worked. With restaurants shut down, grocery store sales surged, and online ordering proved to be a hit. A loan through the Paycheck Protection Program helped cover employee salaries and other expenses. And in early June, Russian River was allowed to reopen its brew pubs.
Still, it has only been a partial rebound. Revenues are back more or less to normal levels, but profits are still down because margins are lower for grocery-store sales. The company has brought back most of its furloughed workers, but it has permanently laid off 20 percent of its staff.
One of its locations had to close again when California reimposed restrictions on indoor dining. The other location has outdoor seating, but that won’t work once the weather cools off.
“We’re open, we’re closed, we’re open, we’re closed — we’re kind of in this yo-yo here in California,” Ms. Cilurzo said.
While other business managers responded to the pandemic by cutting staff and postponing investment, Peter Fenkl doubled down. This month Mr. Fenkl broke ground on a major addition to a factory he oversees in southern Germany that produces high-performance fans.
Mr. Fenkl is chief executive of Ziehl-Abegg, a maker of ventilation systems for hospitals, factories and large buildings. The company’s investment of 16 million euros, or $19 million, in additional floor space helps explain why the German economy is showing signs of bouncing back with surprising pep. In a nation not known for producing sunny optimists, German business leaders are upbeat about their prospects.
“If we wait to invest until the market recovers, that’s too late,” Mr. Fenkl said in an interview. “We want to be prepared.”
Surveys show that managers’ expectations for future sales are almost back to pre-virus levels, despite a steep slump in German economic output from April through June when lockdowns were in force. That optimism translates directly into growth, emboldening companies to rehire furloughed workers and invest in expansion.
Much of that growth is driven by specialized, midsize companies like Ziehl-Abegg, which has 4,300 employees worldwide.
Ziehl-Abegg, based in the town of Künzelsau about 60 miles north of Stuttgart, has not been immune to the economic impact of the virus. Sales have stagnated this year, and employees in departments like marketing or servicing have been furloughed.
But Mr. Fenkl said that the Chinese market has already recovered and that some Ziehl-Abegg departments are working overtime to fill demand for products such as fans for big data centers.
The overall economy may be looking shaky, but one exception is the housing market. The National Association of Realtors’ Pending Home Sales Index jumped 16.6 percent in June, hitting its highest level since 2006.
The Federal Reserve’s decision to cut interest rates to near zero has provided support, with many home buyers taking advantage of exceptionally low borrowing costs.
Housing starts have also bounced back, rising 17 percent last month, according to the Commerce Department. Sales of new homes rose 13.8 percent in June and 19.4 percent in May. Demand for new homes should help revive construction jobs.
“Home sales continue to see a bounce reflecting low mortgage rates as well as stronger demand as more and more people work from home and opt for larger spaces,” said Rubeela Farooqi, chief U.S. economist at the research firm High Frequency Economics.
In addition, Ms. Farooqi said, a desire to move from densely populated urban areas to the suburbs and beyond is driving sales.
“I don’t know how long this lasts, but I wouldn’t be surprised if there’s momentum for the next month or two,” Ms. Farooqi said.
In addition to issuing second-quarter figures, the Commerce Department on Thursday revised data for economic growth over the previous five years. The updates were mostly minor, especially in the context of this year’s huge declines. But they did restore some bragging rights to President Trump — while also giving new ones to his predecessor.
The government now says that U.S. gross domestic product grew 3 percent in 2018, up from the previously reported 2.9 percent. The difference isn’t significant economically, but it might matter politically: the president and his advisers repeatedly promised annual growth of at least 3 percent. (Mr. Trump has at other times promised growth of 4 percent or more.)
When the Commerce Department released its initial 2018 estimate, in February 2019, it looked as if Mr. Trump had met his goal: The report showed growth of 3.1 percent. But that talking point was wiped away when the figure was revised downward a few months later. Now, it has been pushed back up.
Mr. Trump may be less happy about another revision, however. The government now says that G.D.P. grew 3.1 percent in 2015, up from 2.9 percent before the update. Mr. Trump has in the past criticized his predecessor, Barack Obama, for never hitting 3 percent for a full year.
The revisions are part of an annual process to incorporate new data sources and apply updated methods. This year’s changes didn’t alter the overall picture: Growth has hovered around 2 percent a year, with any accelerations proving short-lived.
The 2018 boomlet was no exception. Growth slowed to 2.2 percent in 2019 (revised from 2.3 percent), and has plunged into negative territory this year because of the pandemic.
United Airlines warned its pilots on Thursday that it may need to expand planned furloughs if demand for flights remains deeply depressed and a vaccine is not mass produced by the end of next year. The airline previously said that it could furlough up to one third of its pilots, or 3,900 people, this year and next. “That may not prove to be enough,” an executive said in a memo to pilots.
California Pizza Kitchen filed for bankruptcy protection in Texas on Thursday. The company, which operates more than 200 locations in the United States and internationally, said it will use the restructuring process to close unprofitable locations and cut debt, and plans to emerge from bankruptcy in under three months. The company is the latest dining chain to file for Chapter 11 protection during the pandemic, following Chuck E. Cheese’s parent company, CEC Entertainment, and NPC International, the largest U.S. franchisee of Pizza Hut.
Comcast, the largest cable operator in the U.S., reported on Thursday $23.7 billion in revenue and $7.9 billion in adjusted profit for the second quarter, beating expectations. Peacock, its new streaming product, attracted 10 million sign-ups in its first three months. The company added 323,000 more broadband customers, but it lost 477,000 pay TV subscribers.
Yum Brands reported on Thursday that its same-store sales in the second quarter fell about 15 percent from a year ago (not 12 percent as was earlier reported here). The company, which runs the Pizza Hut, KFC and Taco Bell fast food chains, said nearly all of its restaurants around the world are at least partially open and sales in June had leveled off. Same-store sales in June were nearly unchanged from a year ago.
Volkswagen said on Thursday it fell into the red during the first six months of 2020 after sales plunged 23 percent compared to a year earlier. But the world’s largest carmaker said vehicle sales, which were down by more than half in May, have begun to recover.
Airbus reported a big loss for the first half and vowed to conserve cash; AstraZeneca reported a 26 percent rise in earnings for its first half as sales of new drugs beat forecasts; Credit Suisse beat expectations, thanks to a surge in trading revenue; trading also aided Shell, which reported a smaller-than-expected loss, and Total, which disclosed a surprise profit; and Nestlé announced an 18 percent rise in first-half profit but warned of slowing growth for the rest of the year.