On The Money: US economy contracts at 4.8 percent rate, most since Great Recession | Powell urges Congress to unleash ‘great fiscal power’ to defeat coronavirus, repair economy | IRS gets coronavirus payments out quickly but imperfectly

On The Money: US economy contracts at 4.8 percent rate, most since Great Recession | Powell urges Congress to unleash ‘great fiscal power’ to defeat coronavirus, repair economy | IRS gets coronavirus payments out quickly but imperfectly

Happy Wednesday and welcome back to On The Money. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.

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THE BIG DEAL— US economy contracts at 4.8 percent rate, most since Great Recession:

The U.S. economy shrank by an annualized rate of 4.8 percent in the first quarter of 2020 as the coronavirus pandemic forced millions of Americans out of work and thousands of businesses across the country to shutter, according to data released Wednesday by the Commerce Department.

U.S. gross domestic product (GDP) fell at a yearly rate of nearly 5 percent since the first quarter of 2019, according to the advance estimate from the Bureau of Economic Analysis (BEA) amid the economic devastation caused by the pandemic and the desperate measures to contain it.

“This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending,” wrote the BEA, warning that “the full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020.”

I break down the data here.

Strong economy falls apart: More than 26 million Americans have filed new applications for unemployment benefits since mid-March, according to the Labor Department, likely pushing the jobless rate from 3.5 percent in February to above 20 percent in April. Thousands of businesses across the country are facing financial peril or bankruptcy after being forced to close or limit operations for months.

  • Consumer spending, which powers roughly two-thirds of GDP, sunk at an annualized rate of 7.6 percent in the first quarter. 
  • Spending on durable goods such as appliances, electronics and furniture sunk 16.1 percent, while spending on food, cleaning products and other short-use purchases rose 6.9 percent as Americans stocked up.

Economists are bracing for a plunge in GDP growth of roughly 30 percent annualized in the second quarter, which spans April to June and covers the likely peak of COVID-19 cases. 

“Today’s first quarter numbers are just the deeply unappetizing appetizer,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a Wednesday research note.

LEADING THE DAY

Powell urges Congress to unleash ‘great fiscal power’ to defeat coronavirus, repair economy: Federal Reserve Chairman Jerome Powell said Wednesday that now is “not the time” to let otherwise “serious concerns” about the rising national debt limit the federal government’s efforts to cushion the economic blow of the coronavirus pandemic.

During a Wednesday press conference, Powell urged lawmakers to unleash the “great fiscal power” of the U.S. to defeat COVID-19 and repair the economic devastation it has caused across the country.

“The time will come again, and reasonably soon, where we can think about a long-term way to get our fiscal house in order, and we absolutely need to do that,” said Powell, a Republican seen as moderate who urged Congress to cut spending before the pandemic decimated a record stretch of economic growth.

“This is not the time to let that concern — which is a very serious concern — but to let that get in the way of us winning this battle,” he added. I have more on his call for fiscal stimulus here.

Even so, Powell said that further fiscal aid could be essential to a successful rebound from the economic downturn caused by the pandemic, warning against the consequences of doing too little, too late.

“This is the time to use the great fiscal power of the United States to do what we can to support the economy and try to get through this with as little damage to the longer-run productive capacity of the economy as possible,” Powell said.

In a nutshell: This is about as directly as Powell can ask Congress to pass another fiscal stimulus bill and urge congressional Republicans, who generally regard him well, to put aside their mutual concerns about the national debt. The Fed says it’s doing all it can and is asking Congress to do the same.

Read more: Fed holds rates near zero as economy reels from coronavirus

IRS gets coronavirus payments out quickly but imperfectly: In the month since President Trump signed a record $2.2 trillion coronavirus relief package, the IRS has been scrambling to implement key aspects of the measure at a time when most Americans are desperate for government aid.

  • The IRS has won praise from experts for its ability to start implementing the law quickly, but its work hasn’t been perfect. 
  • The agency has been a source of frustration for tens of millions of Americans who are still awaiting their direct payments from the CARES Act that was signed into law on March 27.

Those familiar with the inner workings of the IRS say the agency deserves some credit, especially since it has had to carry out the law’s provisions during tax-filing season and while most of its employees have been directed to work remotely due to the pandemic.

“I think it’s a minor miracle that the IRS has been able to pull off any payments that have gone out,” said Nina Olson, the former national taxpayer advocate who now is executive director of the Center for Taxpayer Rights. The Hill’s Naomi Jagoda explains why.

Beleaguered agency faces monumental task: The IRS has long faced challenges, namely old technology systems and a budget and workforce that is much smaller than it was a decade ago. But in just the past six weeks, the pandemic has prompted changes to the agency’s normal operations and practices, from extending the tax-filing season to closing its offices.

Read more: IRS says more than 130M coronavirus payments have been delivered

GOOD TO KNOW

  • The Dow Jones Industrial Average closed up 532 points, or 2.2 percent, on Wednesday, as studies showed promise for a coronavirus treatment and the Federal Reserve vowed to keep interest rates near zero through the crisis.
  • The Small Business Administration (SBA) on Wednesday briefly closed applications for its popular emergency coronavirus loan program to all but some of the smallest U.S. lenders, infuriating a number of bank industry advocates.
  • With most rent and mortgage checks due Friday, progressives are pushing for an immediate moratorium on housing payments to ease the economic burden of the coronavirus pandemic.
  • Half of Americans in a new poll say they or someone in their household has been financially impacted by the coronavirus pandemic, which has shuttered thousands of businesses across the country and forced millions into unemployment.
  • Workers at Amazon, Whole Foods, Instacart and Shipt say they will walk off the job Friday in protest of their employers’ failures to protect them during the coronavirus pandemic.
  • Democrats are seizing on Senate Majority Leader Mitch McConnell’s (R-Ky.) suggestion that states should be able to declare bankruptcy as the party looks to bring his Kentucky seat into play.