U.S. economic growth literally slammed into reverse in the first quarter, registering its first contraction in six years and its sharpest drop since the last recession as the coronavirus pandemic shut down the economy with unprecedented ferocity.
The U.S. Commerce Department reported on Wednesday that first-quarter gross domestic product, the broadest measure of goods and services produced across the economy, contracted at a seasonally adjusted annual rate of 4.8% in the first three months of the year. That was almost a full percentage point more than the 4% contraction expected by economists polled by FactSet.
The report provides a grim early-days snapshot of the impact that widespread disruptions in the U.S. economy have caused - particularly since responses to the pandemic only began in earnest in the final three weeks of March.
The 4.8% drop in GDP marks the first time quarterly economic output shrank since the first quarter of 2014, when it fell at a 1.1% pace. It also represents the steepest drop-off since the depths of the last recession, which ended in mid-2009.
The biggest drags on the economy were consumer spending, nonresidential fixed investment, exports and inventories, according to the report. However, residential fixed investment along with spending from both the federal and state governments helped offset some of the damage, the Commerce Department said.
Most economists are expecting an even bigger plunge in economic activity in the second quarter, with the economy mostly shut down in April and only now beginning to come back online, with only a few states moving to partially lift restrictions and reopen.
The Federal Reserve will undoubtedly be examining the numbers in detail ahead of the conclusion of its two-day policy meeting later on Wednesday. No changes in policy are expected, though Fed officials' latest assessment on the economy will be scrutinized.
The Fed cut interest rates to near zero in mid-March and also began purchasing bonds, injecting billions in capital and doling out emergency loans to banks and businesses in an effort to help stabilize financial markets and prevent a credit crunch.
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