United States Economy Shrinks By Record 32.9 Percent In Second Quarter

(CBSNewYork) -- The United States economy endured its worst quarter in recorded history this spring. The real Gross Domestic Product (GDP) -- the value of all the goods and services produced in an economy -- declined at an annual rate of 32.9 percent. That's according to the advance estimate from the Bureau of Economic Analysis. The decline reflects the effects of the COVID-19 pandemic that forced much of the country to stay home and limit spending.

The previous record occurred in the first quarter of 1958, when the economy shrank by 10 percent. The coronavirus contraction this past spring far exceeds the first quarter of 2020, which included two months of normal economic activity, and any quarter during the Great Depression.

Second quarter figures reflect consumer spending that resulted from the CARES Act. The $2 trillion-plus stimulus package included $1,200 stimulus payments to most individuals and an additional $600 in weekly benefits to the unemployed.

While the latest figures are jarring, they were also entirely expected given the ongoing public health crisis. Consumer spending fell drastically as millions lost jobs, either temporarily or permanently. Local government spending dropped, due to reduced sales tax revenues. And exports declined, with other countries facing their own coronavirus concerns.

The Federal Reserve expects more hardship, along with some improvement, to come. In a statement yesterday, it said, "The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses."

The short-term outlook is far from rosy. Small businesses continue to struggle, and unemployment numbers remain near record highs. Another 1.4 million people filed for unemployment benefits last week, the second weekly increase in a row. And as the first stimulus package expires Congress is far from agreeing on a much-needed second stimulus.

There is some potential for tempered hope in coming months. "The third quarter, provided Coronavirus doesn't rear its ugly head to the extent that it closes the economy down, is probably going to look good," says Giacomo Santangelo, who teaches economics at Fordham University and the Stillman School of Business at Seton Hall University.

That's from a purely mathematical standpoint, of course. "Given how bad it gets, any little recovery is going to look great from a mathematical standpoint," says Santangelo. "GDP growth is going to be really great."

After a drastic fall, like the economy experienced in the second quarter, the baseline from which growth is measured is much lower. So any growth will seem that much more impressive on a percentage basis. Even drastic growth, however, won't return the economy to where it was in the first quarter of 2020, let alone the fourth quarter of 2019.

According to Santangelo, "every time president Trump talks about how great the first quarter of 2021 is going to be, he's basing that on the assumption that, by holiday time, the economy is going to be chugging along again. And from that viewpoint, sure the first quarter is going to look great. But there are a lot of things that have to happen before that can be true."

For one, this scenario would require a level of coronavirus containment the United States has not yet achieved.