Shutterstock
The US’ gross domestic product shrank by a surprising 4.8% in the first quarter of 2020. As one might expect, this was due to the novel coronavirus necessitating lockdowns nationwide. However, the amount by which the GDP shrank was ahead of expert predictions. Many expected GDP to fall, but only by around 3.5%.
This is a marked turnaround from the economy in the last six years. Since 2014, the economy has only been moving up. Record low unemployment and a soaring stock market made the last half of the 2010s a prosperous era for the US. However, thanks to COIVD-19, prosperous days are now behind us.
While the first quarter of 2014 saw a small 1.1% shrink in GDP, it was a minor blip for the markets. This recent first quarter plunge was the sharpest since the fourth quarter of 2008. For those that don’t remember, that marked the beginning of the 2008 financial crisis. During that time, the housing market collapsed spectacularly thanks to widespread bank mismanagement and credit defaults.
In that era, big banks were scrambling for bailouts. Working people were getting reverse mortgage agreements to make ends meet. In short, it was a rough time, and required sweeping bank reforms and regulations. The reason dip, however, is a different beast entirely.
This loss of GDP is not due to some problem in the economy like in 2008. In fact, the economy, up until COVID’s arrival, was quite strong. Instead, the crisis is somewhat self-inflicted. The decision to enact swift social distancing guidelines, while necessary to save lives, also shrank the economy. This is simply a factor of logistics.
While some jobs can be performed from home, many “non-essential” jobs cannot. Since consumer spending makes up the bulk of the American economy, one can imagine how detrimental the closures have been. Likewise, “non-essential” workers who are out of a job are now dependent on unemployment benefits to pay bills and buy food.
The US is currently experiencing soaring joblessness in the face of a disease that has no cure and no vaccine. While the path forward is currently difficult, there is a silver lining. Since the economy was interrupted, not flawed, it’s quite possible that the bounce back from COVID could be swift.
Once lockdown orders are lifted and people resume their normal lives, economists hope to see a rapid return of the economy. After all, production and manufacturing centers are still present. The government has made moves to keep industries afloat with generous loans. There is hope for the future, but the path forward will be tough.
