US market review: US economy suffers record contraction

The US fell into recession during the second quarter as activity was curbed by a decline in spending and a surge in Covid-19 cases. Having shrunk by 5% in the first three months of 2020, the country’s economy contracted by 32.9% during the second quarter.


  • States reimposed measures to stem Covid-19’s spread
  • Consumer confidence weakened
  • The labour market deteriorated

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“The strained relationship between China and US deteriorated further”

The US fell into recession during the second quarter as activity was curbed by a decline in spending and a surge in Covid-19 cases. Having shrunk by 5% in the first three months of 2020, the country’s economy contracted by 32.9% during the second quarter. Imports and exports fell at an annualised rate of around 22.1% and 23.7% respectively over the period, while consumer spending declined by 10.7%.

“The strained relationship between China and US deteriorated further”

Although the US economy is expected to return to growth during the third quarter, the current spike in Covid-19 cases could derail an economic rally. According to the World Health Organisation (WHO), almost 4.4 million cases of Covid-19 had been diagnosed in the US by the end of July, with more than 150,000 deaths recorded. Many states opted to restore restrictions during the month, triggering disagreements between President Trump and individual districts about school reopenings. Elsewhere, the strained relationship between China and US deteriorated further over US opposition to China’s intensifying control over Hong Kong and the closure of China’s Houston consulate.

Despite the ongoing uncertainty, investors welcomed promising results from early Covid-19 vaccine trials. The Dow Jones Industrial Average Index rose by 2.4% over the month, while the S&P 500 Index climbed by 5.5%, and the Nasdaq Index increased by 6.8%. During July, the best-performing S&P industry sectors were consumer discretionary, utilities, and materials; in contrast, energy was the only sector to end the month in negative territory.

Credit ratings agency Fitch warned that the recent sharp increase in Covid-19 cases could weigh on the pace of economic recovery during the third quarter, as delays to reopening and renewed social distancing measures disrupt business activity. Meanwhile, S&P Global Ratings urged the country’s leaders to introduce further stimulus measures to support  the economy.

Federal Reserve (Fed) Chair Jerome Powell warned that the current economic slowdown was “the most severe in our lifetimes” and further monetary and fiscal support is likely to prove necessary. Looking ahead, the Fed believes that the economic path is likely to hinge on the development of the virus, and the measures taken to keep it in check.

Consumer confidence deteriorated in July, according to the Conference Board, as the labour market showed signs of pressure. More than 1.4 million people filed new claims for unemployment in each of the last two weeks of the month.


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