Via Financial Times

US economy forecast to shrink 38% in second quarter — CBO

Peter Wells in New York

The US economy is forecast to shrink nearly 38 per cent in the second quarter compared to the same period last year, according to the most recent analysis prepared for the country’s lawmakers.

The body expects the pandemic to leave more than 25m Americans without a job by the end of September.

The hit to the economy will end the longest economic expansion in US history and could rank as the most severe since the government began keeping quarterly records soon after the conclusion of the second world war.

The Congressional Budget Office expects the US economy to contract in the second quarter by 37.7 per cent compared to the second quarter of 2019 and by 11.2 per cent from the end of March. The Bureau of Economic Analysis announcement that the US economy contracted at an annualised rate of 4.8 per cent in the first three months of the year, represented the steepest decline since the financial crisis.

The CBO’s new forecasts are marginally better than its April projection for the same period, for a quarter on quarter decline of 12 per cent and a 40 per cent annual contraction. The quarterly growth rate is expected to rise 5 per cent in the third quarter, and then edge up a further 2.5 per cent in the final three months of the year.

The CBO’s new forecasts incorporate the economic forecasts of stimulus programmes enacted by the federal government in March and April and “that legislation will partially mitigate the deterioration in economic conditions”.

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“In particular, greater federal spending and lower revenues will cause real GDP and employment to be higher over the next few years than they would be otherwise. The effects of the legislation on economic activity will be largest in the second and third quarters of 2020 and smaller thereafter,” the CBO said.

The number of unemployed people is forecast to hit 25.1m by the end of September, compared with 23.6m at the end of June and 5.8m at the end of 2019. By comparison, during the financial crisis, 7.9m were out of work between the end of 2007 and end of 2009, the CBO said.

That equates to unemployment rates of 15.1 per cent and 15.8 per cent at the end of the June and September quarters, respectively.