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National

U.S. GDP Shrank In The First Quarter, Expected To Worsen In The Second

ARI SHAPIRO, HOST:

The coronavirus pandemic didn't really lay a hand on the U.S. economy until the second half of March. When the punch finally landed, it was a knockout. After just a couple weeks under lockdown, the economy had shifted into reverse.

MARY LOUISE KELLY, HOST:

Well, we got an accounting of that slowdown today from the federal government. GDP shrank in the first quarter at an annual rate of nearly 5%. And the second quarter - the one we're in now - is expected to be much worse. NPR's Scott Horsley is here.

Hey, Scott.

SCOTT HORSLEY, BYLINE: Good to be with you, Mary Louise.

KELLY: No surprise, I guess, that people are not out shopping a lot these days or traveling or going to concerts or going anywhere, really. How much damage is that doing to the economy?

HORSLEY: It's doing considerable damage. The Commerce Department says personal consumption fell in the first quarter at the sharpest drop in four decades. Now, obviously, with 26 million people filing for unemployment in recent weeks, some folks have less money to spend. And then, you know, with the exception of grocery stores, a lot of the places where one ordinarily would spend money are closed - not just retail shops but theaters; you know, nobody's traveling these days. Somewhat surprisingly, spending on health care was also down. Nobody's going to the doctor unless they've got COVID-19. So all that's taking a toll.

KELLY: And it sounds like things are going to get worse before they get better.

HORSLEY: That's right. Keep in mind the nationwide hunker-down didn't even start till the second half of March, and just that two- or 2.5-week period was enough to erase all the gains of January and February and put us on the path to a deep recession. Now you come to the current quarter. April has been a total bust. May is going to be a write-off in much of the country. Forecasts are that the economy is going to contract in this quarter at an annual pace of something like 30% to 40%.

KELLY: Wow.

HORSLEY: We have not seen anything like that kind of cliff-dive since the Great Depression of the 1930s.

KELLY: Now the Federal Reserve has been warning, has been letting us know that the pandemic would be weighing heavily on the economy, on employment, on inflation, that it poses risks to the economy - looking way down the road. What is the Fed doing about this?

HORSLEY: Fed Chairman Jerome Powell had a news conference this afternoon where he promised that the central bank will continue to act - in his words - forcefully, proactively and aggressively to cushion the economic shock from this pandemic. And certainly, the Fed has done that so far. They've not only slashed interest rates, but they've reached for all kinds of emergency tools from the toolbox, even inventing some new ones. The central bank is lending money to corporations, to cities, to counties, pretty soon even to mid-sized businesses, to help them stay afloat. And Powell says the goal of all these novel programs is to prevent more long-term damage to the economy.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: The measures we are taking to contain the virus represent an investment in our individual and collective health. As a society, we should do everything we can to provide relief to those who are suffering for the public good.

HORSLEY: Now, Powell did express some confidence that the economy will rebound as businesses reopen and people go back to work. But he cautioned it's not going to happen real quickly - until people regain confidence. He also said that this is not the time to let concerns about, for example, deficit spending get in the way of winning this fight.

KELLY: Scott, before you go, help us figure this one out. This is - sounds like awful economic news today, and yet the stock market rallied. The Dow Jones Industrial Average was up more than 500 points today. What's going on?

HORSLEY: Yeah, there's been kind of a disconnect between the stock market and the real economy for a while now. We're still seeing a lot of volatility in the stock market. But after that really steep slide in early March, the market has kind of been trending upwards. The Dow, for example, is now less than 17% down from its February peak. It was down a lot more from that at the trough. Today's gains seem to be tied to some positive results at a clinical trial of a COVID-19 treatment. Obviously, these are early days, but investors are looking for any sign of good news that might get them past this pandemic.

KELLY: Thank you, Scott.

HORSLEY: You're welcome.

KELLY: NPR's Scott Horsley. Transcript provided by NPR, Copyright NPR.