WASHINGTON — In the broadest measure so far of COVID-19’s economic damage, the government said Wednesday that total U.S. output in the first quarter fell 4.8% — faster than at any time since the Great Recession.
But economists quickly noted that even this decline was likely the tip of the iceberg because the first quarter number included January and February, and reported coronavirus cases did not begin to surge until March. The full dimension of the pandemic’s economic damage will not be visible in the data until the second quarter.
It left little doubt that the nation’s record 10½ years of economic expansion has come to an abrupt end, with profound political and economic repercussions.
Wednesday’s negative news, coupled with grimmer prospects ahead, pose serious challenges to President Donald Trump’s reelection strategy, which was designed to capitalize on now-vanishing prosperity.
The pandemic also poses problems for Democrats hoping to rely on traditional campaign rallies and other methods of building support.
Two consecutive quarters of negative growth in the gross domestic product — a tally of all goods and services produced in the nation — are usually considered a recession. And the U.S. economy got worse in April as businesses across the nation shut down, millions of workers were laid off, state governments imposed lockdowns, and claims for unemployment benefits skyrocketed.
Economists have projected GDP to crater in the second quarter by an unprecedented 30% or more.
“It’s just the first leg of our journey,” Joel Prakken, chief U.S. economist at IHS Markit, said of Wednesday’s report.
The research firm this week was forecasting a 37% annualized plunge in GDP for the current quarter. The steepest quarterly drop during the Great Recession was 8.4% in early 2009.
“This is going to blow that out of the water,” Prakken said.
In one hopeful sign, he and others said the second quarter could very well turn out to be the bottom for the economy because some states already have begun to allow businesses to reopen, and eased up on lockdowns and restrictions for public gatherings.
The economy should also be getting a lift from the nearly $3 trillion in various relief spending by Congress — including more than $650 billion aimed at small businesses — and trillions more of lending and credit programs by the Federal Reserve.
The stimulative effect of the federal spending could be reduced if recent reports of large corporations gobbling up federal aid meant for small businesses use the government money instead of pumping new life into the economy.
Stock markets have turned more optimistic in recent days, though many analysts see little in the overall economy or corporate earnings outlook to support the price gains.
“Equity market investors are whistling by the COVID graveyard,” said Diane Swonk, chief economist at the accounting firm Grant Thornton in Chicago.
“You really get the sense that the stock market, Wall Street, has disconnected from Main Street entirely, and is looking at a much more robust recovery than can occur, even in the best-case scenarios.”
Even if easing of social distancing rules does not trigger a secondary surge of infections that forces another pullback, a short-lived downturn does not necessarily mean a quick return to pre-pandemic times.
Although the U.S. economy could start growing again this fall, most economists see a halting recovery given the uncertainty of the medical situation and the magnitude of the financial losses to businesses and consumers, who account for the bulk of U.S. economic activity.