By Harriet Torry
The U.S. economy contracted at a record 32.9% annual rate last quarter and weekly jobless claims rose to 1.43 million, amid signs of a slowing recovery.
The Commerce Department's initial estimate of U.S. gross domestic product in the second quarter is the steepest drop in records dating to 1947. The decline came as states imposed lockdowns across the country to contain the coronavirus pandemic and then lifted restrictions. Economists expect the economy to resume growth in the third quarter, which began on July 1.
Separately, applications for unemployment benefits increased by a seasonally adjusted 12,000 to 1.43 million for the week ended July 25, the Labor Department said Thursday. Filings for unemployment benefits have eased since a late-March peak but remained at historically high levels.
A surge in virus infections since mid-June appears to be slowing the recovery in some states, according to some private-sector real-time data.
"The key caveat is that it will be a lot less better than we were expecting a few months ago," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said about the third-quarter, citing the pickup in coronavirus cases.
JPMorgan Chase & Co.'s tracker of credit and debit-card transactions, for instance, showed that spending rose in May and early June before stalling and remained flat through last week. Data by Facteus, which tracks transactions by 15 million debit and credit card holders, also suggest restaurant spending was increasing in June and has largely flattened since.
The U.S. Census Bureau also said in its latest weekly Household Pulse Survey that 51.1% of households experienced a loss of employment income in the week ended July 21, up from 48.3% four weeks ago.
"The main focus now is on what's happening in the third quarter, and whether signs seen in high-frequency indicators of a slowdown show up when we get official data for July and August," Andrew Hunter, an economist at Capital Economics, said.
The expected second-quarter contraction would be the steepest quarterly drop in records dating back to 1947, and a decline that is more than three times greater than in the first quarter of 1958, when GDP fell by a 10% annual rate.
The GDP report is likely to show the deep hit to consumer and business spending from lockdowns, social distancing and other measures aimed at reducing the virus's spread. States in May started reopening their economies -- leading to partial rebounds in jobs and spending -- though a number of them have imposed fresh curbs as infections have risen.
"By the end of the [second] quarter, there's no question things were up substantially, but the start of the quarter was so horrible that the quarter as a whole will be awful," Mr. Shepherdson said.
Matt Godden, chief executive of Seattle-based Centerline Logistics, a marine-petroleum transportation operator, said he saw encouraging signs in the shipping industry.
"Looking at July's volumes, there's some decent signs of hope," such as increased shipping traffic and some stabilization in energy markets, he said. "Container customers may have over-cut," he added, saying some are now trying to increase shipping capacity.
Consumer spending, particularly on big-ticket items such as homes, autos and other long-lasting purchases, increased in June. Employers also added nearly 4.8 million jobs in the month, though the labor-market recovery might be slowing as well.
On Wednesday, Boeing Co. said it would cut production of commercial jets and shrink its workforce further. Companies including Harley-Davidson Inc. and Microsoft Corp.-owned LinkedIn also announced job cuts in July.
The number of daily U.S. coronavirus infections has shown recent signs of leveling off amid recent restrictions, but the pandemic continues to cast a cloud over the economy.
The Conference Board, a private research group, said Tuesday that its index of consumer confidence sank to 92.6 in July from 98.3 in June, as consumers became less optimistic about the short-term outlook for the economy and labor market.
Nadia Montoya lost her job in late March as a pastry chef at a Novato, Calif., restaurant because of the pandemic. She now has a part-time job at an organic supermarket, and is making cakes and desserts at home for friends and neighbors to help cover expenses.
"Things that were relatively normal for us -- going on vacation, camping, going out to eat with the kids -- all that changed since we can't do that anymore, because they're closed and we don't have the money," she said. "It's really hard at the moment.".
Businesses also cited continued uncertainty from the pandemic.
"Overall, there's a lot of chaos. People do not know for sure whether their states are going to shut down tomorrow," said John Flynn, CEO of Fleet Advantage, a Fort Lauderdale, Fla.-based truck-leasing company. "It's going to be a tough year for everybody."
"Everyone is very, very cautious," said Mike Cavanagh, owner of Key Code Media, an audiovisual company in Burbank, Calif., adding he has business in the pipeline but senses his clients remain nervous about the economy. "I guess the best way to put it is I'm muddling through."
Congress has approved trillions of dollars in stimulus to help U.S. households and businesses get through the pandemic, and another package is now being negotiated on Capitol Hill. One key component -- an extra $600 in weekly jobless benefits -- is due to expire at the end of July, but lawmakers are still discussing whether and how to extend the aid.
--Sarah Chaney contributed to this article.
Write to Harriet Torry at email@example.com
(END) Dow Jones Newswires
July 30, 2020 09:00 ET (13:00 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.