Downfall of United States economy amidst the pandemic


  • Overview of the United States economy during the lockdown restrictions.
  • Sector-wise contractions as a result of economic downturn emanating from subdued economic activity.
  • Recovery of the economic activity post ease of lockdown restrictions.


In 1958, the Gross Domestic Product (GDP) of the world’s largest economy- United States declined by 10 percent amidst the depression that coincided with the devastating pandemic - “Asian flu”. Exactly 62 years down the line, the US economy has yet again been jolted by the biggest drop in GDP that has plunged by massive 32.9 percent at annual rate during the April-June quarter walloped by Covid-19 pandemic that swept the economic activity of the country. Consumer spending, which accounts for about 70 percent of the economic activity in the US, collapsed at an annual rate of 34.6 percent led by closure of restaurants, entertainment venues and other retail and leisure establishments. Even the investment spending declined by massive 27 percent while the residential housing tumbled 38.7 percent. The chart below depicts the mammoth fall in the GDP growth during the last four years, reflecting the impact the pandemic has left on the US economy.



The Personal Consumption expenditure which was inflated by 2.47 percent during the second quarter of 2019, saw an unprecedented decline of 25.05 percent, perhaps the largest hit that US economy has witnessed since 1947. The service sector witnessed the highest ever brunt with growth rate falling to all time low by 22.93 percent majorly contributed by decline in household consumption expenditure (for services) by 25.93 percent. The table below highlights the impact each sector had on the falling GDP growth rate for the first and second quarter ended 2020.



Personal Consumption expenditure fell by whooping 25.05 percent in the second quarter as seen from the table above from 4.75 percent decline in the previous quarter. This was mostly marked by fall in demand for goods and services due to inactivity in the crucial sectors of the economy led by terrible impact of Covid-19 had on the US livelihood. The demand for non-durable goods like clothing and footwear fell by 0.95 percent as compared to 0.2 percent rise in the same quarter last year. But the unparalleled decline in growth in GDP was manifested by household consumption expenditure which melted down by 25.93 percent in the second quarter of 2020 in conjunction with 6.26 percent fall in the previous quarter. Due to the pandemic and unprecedented impact the virus had on the livelihood, the consumption expenditure for healthcare, transportation, recreational, food and accomodation due to closure of hotels and restaurants fell considerably. Even the gross domestic private investments declined sharply by 9.36 percent during the second quarter primarily led by fall in demand for Equipment which fell by 2.13 percent. Even the residential property investments faced the glare with reduced investment during the second quarter as seen from the table above.The overall decline in the total household consumption expenditure together with falling private investments rooted the GDP which slashed down by 32.9 percent, highest ever witnessed in the history of US economy.


The statistic above shows the monthly trend of the economic health of the US manufacturing sector which contracted to record low of 41.5 in April indicating the deteriorated economic conditions as envisaged by the decline in manufacturing growth which had itself fallen by more than 16.3 percent during the month ended April 2020. Industrial production has started to fall at the onset of pandemic in March where it gradually declined from negative 0.2 percent in February 2020 to negative 4.8 percent in Mar 2020 as also reflected in the production data for the trailing twelve months ended June 2020 below.



However, both the industrial production and PMI revised upwards from May 2020 as factories started to resume its operations following the interruption caused due to Covid-19. The PMI rose to 43.1 in May 2020 from the record low of 41.5 in April, and further to 54.2 in July 2020 indicating the gradual stabilisation of the economy with ease in lockdown measures. Even the Industrial production witnessed recovery from the all-time low of negative 16.3 percent in April 2020 to negative 10.8 percent in June 2020.

The economic slowdown in the United States during the Covid-19 further eased the Consumer Price Index (CPI) to 255.768 points in May 2020 from 259.05 points in February 2020.



Annual inflation rate in the US subsided to 0.3 percent in April 2020, from 1.5 percent in March 2020 being the lowest recorded inflation rate since October 2015 mainly guided by 32 percent plunge in gasoline prices with negative oil prices amidst storage and oversupply concerns. The covid-19 pandemic restrictions in the US manifested a 5.7 percent drop in cost of apparel and 5.5 percent fall in cost of transportation leading to ease of inflation rates in April. On a monthly basis, gasoline price fell by 20.6 percent leading to decline in consumer price by 0.8 percent, largest drop since December 2008.

The states unemployment rate soared to as high as 14.7 percent in April 2020 from 3.5 percent in February 2020 due to curb in economic activities led by widespread pandemic. However, total non farm payroll employment rose by 4.8 million in June whereas the unemployment rate declined to 11.1 percent in June 2020 as per the data released by the U.S. Bureau of Labor Statististics. The improvement in employment is marked by the resumption in economic activity as various sectors are getting back to normal.

The ongoing pandemic has made a staggering impact in almost all the major economies of the world and even the 22 trillion developed United States economy was not spared. The greatest challenge post pandemic and after the lockdown measures have been completely lifted, would be the pace at which the countries re-stablize its economic activities and get the wheels of its growth trajectory rolling as existed before the onset of the pandemic. The country which adapts itself faster than others would be the one to overcome this unprecedented crisis.

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