This week saw the release of several crucial economic data measures from the federal government. The Commerce Department released a shocking figure of GDP growth in the second quarter of 2020 and the Department of Labor made public data regarding unemployment insurance claim applications. These two immediately significant releases provide Americans a real, quantifiable glimpse of the impact of both the global COVID-19 pandemic and the federal government’s response on the economic realities of citizens.
The US economy contracted at a historically rapid rate over the second quarter of 2020, with the annual GDP growth rate falling to a loss of 32.9%. Definitively, this does not mean that the US economy shrunk by a third, nor does it mean that GDP shrank this much since the first quarter of 2020. The loss of 32.9% is an annualized rate, signaling that if economic conditions over the second quarter were persistent and held steady, US economic output would contract by 32.9% over one year (also accounting for seasonal adjustments). Albeit shocking and historic, this annual growth rate figure must be taken in context. Extreme measures such as national shelter-in-place orders and widespread non-essential business shutdowns were taken for several weeks as the US fought to combat the novel coronavirus and slow the spread of transmission of COVID-19 in March and April. Lockdowns have since eased and businesses, once shuttered, have reopened to the public. But these short-term swings took a serious toll on American economic output. As the economy begins on its path to rebuilding and growth, these measures must be taken in context, and sometimes that means annualized rates are not the best means of representation.
Secondly, the Department of Labor released its data regarding new applications for unemployment insurance benefits. Such applications increased by 12,000 to 1.43 million in the week ended July 25th. Simultaneously, the number of individuals receiving unemployment benefits passed 17 million in mid-July, as the pandemic’s unabated effects took their toll on the US labor market. Members of Congress are currently in talks of another stimulus package for Americans severely affected by the pandemic, but partisan gridlock stalls progression. The federal $600 unemployment benefit program, which began earlier in March, ceased August 1, leaving millions of Americans without a weekly income as unemployment insurance claims continue to rise.
As August rents have come due, federal unemployment insurance benefits cease, and the labor market struggles to rebound after a record-setting economic contraction over the last three months, millions of Americans will face the brunt of economic hardship. Without some sort of further economic stimulus, the spillover effects to businesses and investment will be marked.