The U.S. economy suffered its worst collapse ever during the coronavirus shutdowns in the second quarter and, while the report was expected, it added pressure Thursday on negotiators in Washington to reach a deal on another round of emergency federal aid for businesses and tens of millions of unemployed workers.
Gross domestic product fell at an annual rate of 32.9% in the April-through-June period, the Commerce Department said. It was the worst performance since the government began tracking GDP in 1947; economists had forecast a drop of 34.7%.
Initial jobless claims rose slightly last week to 1.43 million, and continuing claims rose by more than 867,000 for the week ending July 18, the most since May. The total number of continuing unemployment benefits claims climbed to more than 17 million as outbreaks of COVID-19 surge in many states.
Those numbers added urgency for negotiators in Washington to break an impasse on the competing partisan relief proposals ranging from $1 trillion to more than $3 trillion. But enhanced federal unemployment benefits of $600 per week will expire Friday as negotiations between the White House and Democratic leaders made no progress.
Senate Republicans late Thursday voted to begin debating an extension on unemployment benefits, setting up possible action next week. The move, which passed on a 47-42 vote, would take up part of the $3 trillion House-passed coronavirus relief package and replace it with unemployment benefits at a lower weekly level.
“We’ve had enough rope-a-dope. We’ve had enough empty talk. It’s time to go on the record,” said Senate Majority Leader Mitch McConnell, Kentucky Republican.
Senate Minority Leader Charles E. Schumer, New York Democrat, called the vote a “stunt.”
“For 10 weeks — 10 weeks — we have asked the leader to negotiate. And now finally they’ve woken up to the fact that we’re at a cliff, but it’s too late,” Mr. Schumer said.
Sen. Mitt Romney, Utah Republican and one of the senators proposing a scaled-down approach, said the plan would keep weekly unemployment benefits at $600 for the next month, decrease to $400 for the following month and then settle at 80% of a worker’s previous wages.
Senate Republicans have cited a University of Chicago study that found that 68% of people receiving the weekly $600 federal unemployment benefit enhancement are now getting more than their former wages. Those federal benefits come on top of state benefits for the unemployed.
The president late Thursday changed his proposal, saying he wants Congress to approve a narrow package that extends an unemployment benefit (he didn’t specify an amount) that stops evictions in federally backed housing, that approves another round of direct payments to most Americans and that provides $105 billion to schools to help with reopenings.
Mr. Trump said Democrats “must reject the extreme partisan voices in their party.”
“They’re looking at Nov. 3,” he said.
Sen. Martha McSally, Arizona Republican, attempted to move a seven-day extension of the existing unemployment benefits, but her motion was blocked by Mr. Schumer, who once again argued it was a “stunt.”
House Speaker Nancy Pelosi, California Democrat, blamed the delays on Senate Republicans. Mrs. Pelosi also has rejected calls by Mr. Trump and congressional Republicans for a partial deal on extending enhanced federal unemployment benefits and preventing housing evictions.
“Disaster is on America’s doorstep,” she said. “This pandemic and its fallout really represents the biggest shock to the U.S. economy in living memory. Republicans need to get serious immediately and work with Democrats to save lives and livelihoods during this devastating time.”
She was meeting again Thursday night with Treasury Secretary Steven T. Mnuchin and White House Chief of Staff Mark Meadows.
Mr. McConnell said Democrats are holding up a deal for “silly stuff” such as payments to illegal immigrants and subsidies for the legalized marijuana industry.
He said Democrats are demanding more money for state and local governments, especially in blue states, but noted that state and local governments have used only about 25% of the funding Congress gave them in the previous economic relief bill.
“Democrats are holding up help for struggling people for tax breaks for rich people in blue states,” Mr. McConnell said.
Mr. Schumer said reducing the unemployment benefits to $200 per week, as Republicans have proposed, would be “shocking, inhumane, wrong.” He said Mr. McConnell is not sitting in on negotiations among himself, Mrs. Pelosi, Mr. Meadows and Mr. Mnuchin.
“The reason negotiations are going nowhere right now is because Republicans are divided,” Mr. Schumer said. “We are trying to negotiate. The Senate Republicans are not.”
Presumptive Democratic presidential nominee Joseph R. Biden said the number of unemployment claims “continues to go in the wrong direction,” and he blamed Mr. Trump.
“The depth of economic devastation our nation is experiencing is not an act of God; it’s a failure of presidential leadership,” Mr. Biden said. “Trump is failing to effectively manage our recovery — and Republicans in Congress are refusing to give working families the help they need today.”
He said Washington needs “to extend meaningful and substantial relief for workers now and ensure our states and local governments are not starved into laying off teachers, first responders and health workers.”
“We need a massive public health response to save lives and get our economy back up to speed so we can get to work and build back better than before,” Mr. Biden said.
Trump campaign communications director Tim Murtaugh said the GDP report reflects the recent past of government-forced shutdowns and that the economic recovery is gaining momentum under Mr. Trump’s leadership.
“The president’s policies already have the economy rebounding as the jobs reports from May and June show that an incredible 7.5 million jobs were created as lockdowns ended and businesses began reopening,” Mr. Murtaugh said. “Retail sales and consumer spending have continued to rise, which are more good signs of a strong recovery.”
He said Mr. Biden “oversaw the worst economic recovery since the Great Depression, supported disastrous trade deals, promoted China’s economic advancement, and now promises to raise taxes on more than 80% of taxpayers and strangle job creation with the Green New Deal.”
“In November, voters will know that President Trump is the one to trust on bringing the economy back to greatness,” Mr. Murtaugh said.