The U.S. economy, which began 2020 riding the crest of a record-long expansion, is now officially in free-fall.
The first-quarter gross domestic product — the broadest measure of all economic activity — dropped at a 4.8% annualized rate, the Commerce Department said Wednesday. It's the sharpest drop in four years and biggest contraction since growth fell 8.4% in the fourth quarter of 2008 during the global financial crisis.
And yet, analysts predict a far bigger contraction for the current April-June quarter, when business shutdowns and layoffs have struck with devastating force.
"Thus ended the expansion which began in the third quarter of 2009 — killed by COVID-19," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a research note ahead. "But these data capture only the squall before the second-quarter hurricane, so it's not going to change anyone's mind on the future trajectory of the economy."
The Congressional Budget Office has estimated that GDP will plunge in the current quarter by a 40% annual rate. That would be, by a breathtaking margin, the bleakest quarter since such records were first compiled in 1947.
In just a few weeks, businesses across the country have shut down and laid off tens of millions of workers. Factories and stores are shuttered. Home sales are falling. Households are slashing spending..
"The recession will be worse than the one we went through from 2007 to 2009," Sung Won Sohn, economics and business professor at Loyola Marymount University in Los Angeles, told the Associated Press.
There is also fear that the coronavirus could flare up again after the economy is re-opened, forcing reopened businesses to shut down again.
"The virus has done a lot of damage to the economy, and there is just so much uncertainty now," Mark Zandi, chief economist at Moody's Analytics, told the AP. Zandi said he thought the economy could resume its growth in the July-September quarter before faltering in the final quarter of 2020 and then regaining its footing on a sustained basis in mid-2021 — assuming that a coronavirus vaccine is ready for use by then.
"I would characterize this period as going through quicksand until we get a vaccine," Zandi said.