"Consumers adjusted very rapidly as the lockdowns were put in place," said Michelle Meyer, the head of US economics research at Bank of America, noting the sharp declines in spending on restaurants and travel. "Following this Covid shock, the tendency will be to build up savings and there will also be a change in how people spend and how people live."
Counter-intuitively, healthcare was one of the sectors that provided the biggest drag on the economy, as hospitals stopped performing lucrative elective procedures in order to focus on dealing with coronavirus patients.
Nan Whaley, the mayor of Dayton, recently told the Financial Times that hospitals in the Ohio city had furloughed 40 per cent of their work force. She said hospitals were not performing elective surgery and did not have enough protective equipment to deal with cases not involving Covid-19.
Paul Ashworth, economist at Capital Economics, said healthcare accounted for 40 per cent of the fall in consumption. Transportation, recreation, and food services & accommodations also experienced sharp declines.
Business investment, which was already depressed because of the US-China trade war last year, fell further for the fourth consecutive quarter, recording the most precipitous decline in 11 years.
While the first-quarter GDP figure was buttressed by the strong economy in place before the outbreak of Covid-19, the extent of the collapse caused by the pandemic will become apparent when second quarter data is released, as lockdowns only began in earnest in mid-March.
Some economists forecast the economy could shrink between 30 per cent and 40 per cent in the current quarter. Kevin Hassett, a top White House economic adviser, on Tuesday said GDP in the second quarter would be a "big negative number". He estimated unemployment could rise to as much as 20 per cent by June.
The extent of the economic catastrophe was reinforced last week when the US labour department said 26m Americans had filed jobless claims over the previous five weeks. The government will next week release jobless figures for April, which is expected to show a big spike in unemployment.
"Next Friday will almost certainly be a record shattering employment report in terms of the number of jobs destroyed and the increase in unemployment," said Michael Feroli, chief US economist at JPMorgan Chase. "Much of that [will] get reversed when the lockdown ends, but not all of it. We will see persistently high unemployment rates for many quarters to come."
Congress has approved roughly $3tn in stimulus spending over the past two months in response to the pandemic — with measures that range from "economic impact" payments to individuals, to $659bn for small business loans.
Democrats and Republicans have also started informal negotiations on the contours of another big stimulus package to follow on from the record $2.2tn Cares Act that was passed at the end of March.
Nancy Pelosi, the Democratic House speaker, on Monday suggested she might support a "universal basic income", in a recognition of the dramatic and sustained impact the crisis is having on Americans.
States are calling on Congress and the administration to provide more funding, partly to deal with the immediate fallout from the crisis, but also to make up revenue shortfalls as tax receipts plummet with the imploding economy. Cities have called for $250bn to help them fund everything from municipal government salaries to rubbish collection.
At the same time, the Federal Reserve has unleashed measures — including slashing interest rates, asset purchases, expanded lending facilities and swap lines with foreign central banks — that outstripped its efforts during the 2008 financial crisis.
Those measures helped fuel hopes of a summer rebound alongside a move by states to reopen their economies. The speed at which the economy eventually recovers will have implications for the 2020 presidential race and the re-election chances of Donald Trump.
Mr Trump and his top economic advisers have argued that the economy will bounce back very sharply once the virus is contained. But economists have cautioned against expecting a V-shaped recovery.
"The legacy of the crisis and the potential for long-term structural changes mean at best we currently think the lost output in Q1 and Q2 won't be fully regained until late 2022," said James Knightley, an economist at ING.
Written by: Mamta Badkar and Eric Platt in New York and Demetri Sevastopulo in Washington
© Financial Times
