Economy in reverse: Initial jobless claims rise for second week, GDP falls by record 33 percent

It's the biggest economic contraction on record, dating to 1947.

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By Lucy Bayly

More than 1.43 million people filed for unemployment benefits for the first time last week, according to weekly data released Thursday by the Department of Labor. It's the second-straight week that the number has risen, and the 19th week in a row that the U.S. has seen more than a million claims. For context, the prior peak was in 1982, when the weekly figure hit 695,000.

The extent of the economic damage wrought by the coronavirus pandemic was further revealed on Thursday, with gross domestic product for the second quarter sinking by a record 32.9 percent annualized, according to data from the Bureau of Economic Analysis.

That number is in stark contrast to the robust growth seen before the government was forced to tap the brakes on the economy to halt the spread of the virus. Average GDP has been at around 2 percent, on an annualized basis, but the mass shuttering of businesses, stores and restaurants has curtailed consumer spending, which powers almost 70 percent of the U.S. economy.

Although economic activity did pick back up in May, a spike in coronavirus cases in the Sunbelt states has generated a new round of shutdowns, throwing many more Americans out of work.

Federal Reserve Chairman Jerome Powell has repeatedly warned of a sluggish economic recovery if millions of workers cannot return to their previous jobs and need to retrain or learn new skills.

“It looks like the data are pointing to a slowing in the pace of the recovery,” he said at a news conference Wednesday after the Fed's monetary policy meeting.

Already, millions of Americans are struggling to put food on the table. According to the Census Bureau's weekly household survey, released Wednesday, around 24 million Americans said they had “sometimes not enough to eat,” with 5.4 million saying they "often" did not have enough to eat.

"The fact that initial jobless claims have risen for a second week is worrying and underscores that the nascent consumption recovery is at risk," said Madhavi Bokil, a vice president at Moody's. "Most notably, the termination of the $600-a-week supplemental federal unemployment insurance benefits would create an income cliff for unemployed workers."

The additional $600 per week in benefits set aside as part of the CARES Act for out-of-work Americans expires at the end of the month. For many families, the extra cash has been a lifeline, covering food, housing, even life-saving medicine. Congress is still deadlocked over whether to extend the benefit, with some lawmakers arguing that the size of the payments eliminates the incentive to work.

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While the debate continues in Washington, rents are due this weekend — and by the end of the year, 29 million Americans could be facing eviction, according to the COVID-19 Eviction Defense Project, an advocacy partnership with the Aspen Institute and the Bell Policy Center.

Diane Swonk, chief economist at Grant Thornton, said the Fed is clearly more concerned about the economy than it was just a month ago.

"The resurgence of COVID-19 cases and the impact that has on the economy is spurring the Fed's anxiety. Powell is willing to do more but is limited, and needs Congress to step up to the plate," Swonk said.