U.S. gross domestic product, the broadest measure of goods and services produced in the economy, fell at a 4.8 percent annual rate in the first quarter of the year, the Commerce Department said Wednesday. That is the first decline since 2014, and the worst quarterly contraction since the country was in a deep recession more than a decade ago.
Even so, most of the quarter came before the coronavirus pandemic forced widespread shutdowns and layoffs. Economists expect figures from the current quarter to show G.D.P. contracting at an annual rate of 30 percent or more.
“They’re going to be the worst in our lifetime,” Dan North, chief economist for the credit insurance company Euler Hermes North America.
Treasury Secretary Steven Mnuchin said this week that the economy should “really bounce back” this summer as states lift stay-home orders and trillions of dollars in federal emergency spending reaches businesses and households. Most independent economists are much less optimistic.
The estimates issued on Wednesday are preliminary and based on incomplete data, particularly for March. Some economists expect final figures, due later this spring, to show an even bigger decline.
Stocks rallied on Wednesday, boosted by indications that a drug being tested as a possible treatment for Covid-19 could be showing progress, and as investors pinned their hopes on the gradual reopening of the world’s major economies.
The gains came despite data that showed the U.S. economy shrank by the most since 2008 in the first quarter of the year. Earnings reports from Volkswagen, Samsung, Airbus, Boeing and other giant businesses were also grim.
But investors have been shaking off bad news on the economy for weeks as they focus on progress on efforts to contain the coronavirus pandemic. A steady climb has lifted the S&P 500 by nearly 30 percent since its March 23 low.
The trading on Wednesday had all the hallmarks of a rally fueled by hopes of a return to normal, with shares of airlines and cruise operators — both industries that are dependent on the end of restrictions and the return of travelers — among the best performing stocks in the S&P 500. Oil producers also rallied as the price of crude oil surged.
A rally in the stocks of large technology companies, which have an outsize impact on the overall market, also helped. Alphabet rose more than 8 percent the day after it reported its first-quarter earnings, and Facebook was more than 5 percent higher.
The S&P 500 gained more than 2 percent, and major benchmarks in Europe were also higher.
The mood in the stock market rose substantially after the drugmaker Gilead Sciences said it was “aware of positive data” emerging from a trial of its antiviral drug being conducted by the National Institute of Allergy and Infectious Diseases. The drug, remdesivir, is being tested as a treatment for Covid-19, the illness caused by the coronavirus.
Gilead didn’t elaborate. Another study published on Wednesday found that remdesivir offered no benefit to patients in China who are severely ill with Covid-19.
But investors have been quick to react to incremental updates on the various trials underway.
Oil prices surged, with gains picking up steam after a weekly report on crude oil stockpiles showed they increased by less than expected. Investors have been worried about a glut of crude as demand for energy plunges, along with storage capacity in the United States. On Wednesday, West Texas Intermediate crude, the U.S. benchmark, was up as much as 30 percent, to more than $16 a barrel. Brent crude, the international benchmark, was trading at a little over $23 a barrel, up about 14 percent.
Federal Reserve officials are wrapping up meetings on Wednesday after two months of nonstop action to avert financial calamity from the coronavirus. In the afternoon, the chair, Jerome H. Powell, is to hold a news conference to discuss the Fed’s outlook and perhaps disclose what comes next.
The Fed’s efforts to protect the economy have outstripped even its response to the 2008 financial crisis.
Officials slashed interest rates to rock bottom in a matter of weeks, not months. They have been buying bonds at a record pace, swelling their balance sheet to $6.6 trillion from less than $4.2 trillion in mid-February. And the Fed’s emergency lending authorities are reaching further this time: The central bank has said it will buy municipal debt and lend to both large and midsize companies, measures it did not take in the darkest days of the last crisis.
The monetary intervention reflects the economic shock at hand. The coronavirus outbreak gripped the world quickly and nearly completely, bringing the gears of modern capitalism — from schools and offices to amusement parks — to a standstill.
For all of the Fed’s activism, its most challenging job comes next. A first glimpse at the Fed’s playbook may come after Wednesday’s meeting. Policymakers could hint that they will leave interest rates unchanged for months or years, and some economists think they could offer guidance about their bond-buying plans.
One thing seems likely: Mr. Powell will pledge to do whatever it takes to get the country through a tight economic spot.
Lyft announces layoffs and pay cuts.
Lyft plans to lay off 17 percent of its employees, the company said in a regulatory filing, as the ride-hailing company struggles with a downturn caused by the coronavirus pandemic.
The company told staff about the cuts in an email on Wednesday. Five percent of workers will be furloughed, and remaining employees will take a pay cut. Executive pay will be reduced 30 percent, pay for vice presidents will be reduced 20 percent, and pay for other workers will be reduced 10 percent.
A Lyft spokesman declined to comment.
The company’s co-founders, Logan Green and John Zimmer, had reassured employees during internal chats that layoffs are not imminent and that the company had enough cash on hand to weather the crisis, said two people familiar with the discussions who spoke on condition of anonymity.
But on Saturday, in an apparent mistake, a company lawyer sent out a calendar invite to many of the company’s more than 6,000 employees. The invitation was for a meeting called “Jetty,” and workers at Lyft interpreted it as a sign that the company planned to jettison jobs. The invitation, which was seen by The New York Times, quickly disappeared from employees’ calendars, but became a topic of heated debate among employees this week.
It’s no wonder that the buyout firm Sycamore Partners is trying to back out of its $525 million deal to buy a majority of Victoria’s Secret, the lingerie retailer, from struggling L Brands, writes the New York Times columnist James B. Stewart.
Sycamore signed the agreement on Feb. 20, one day after stock market indexes hit record highs and within days of investors’ coming to realize the devastating potential of the coronavirus outbreak. When the deal was announced, L Brands stock was more than $23 a share. A month later, on March 20, it traded for less than $10 as the company closed its stores and furloughed employees.
Many buyout deals have routine clauses that allow them to be scrapped for material adverse events — so-called acts of God.
But in this agreement, L Brands specifically excluded a pandemic as a reason to break the deal. That means Sycamore faces long odds as it goes to court to terminate the agreement.
“It’s hard for Sycamore to argue they should be excused from the deal,” said Gail Weinstein, a partner at Fried Frank who has written about “material adverse event” clauses in contracts. “The pandemic was at the forefront of everyone’s minds. Even before that, it was public knowledge that a pandemic was likely to happen sometime.”
What Gilead said about its drug’s prospects.
Gilead Sciences said on Wednesday that it was “aware of positive data” from a federal study of its experimental coronavirus drug, remdesivir.
Neither Gilead nor officials at the National Institute of Allergy and Infectious Diseases, the sponsor of the federal research, provided further details. A spokeswoman at the institute confirmed plans to make an announcement later Wednesday.
The federal study includes 400 patients who were hospitalized with Covid-19, the illness caused by the coronavirus, and randomly assigned to take remdesivir or a placebo. Outcomes were scored on a scale ranging from recovery to death.
Boeing reported $16.9 billion of revenue in the first quarter of the year, a 26 percent decline from last year, as the aviation industry ground to a halt during the coronavirus pandemic. The company said Wednesday that it planned to cut its work force by about 10 percent, a reduction it hopes to achieve voluntarily, through buyouts and early retirement offers.
“I know this news is a blow during an already challenging time. I regret the impact this will have on many of you. I sincerely wish there were some other way,” said David L. Calhoun, Boeing’s chief executive, in a note to staff.
As of the start of the year, Boeing and its subsidiaries employed more than 143,000 employees.
With airlines delaying purchases, deliveries and maintenance, Boeing is slowing production rates, including for the troubled 737 Max jet, and is working to increase access to capital. It is planning even deeper cuts of 15 percent to the commercial airplanes and services businesses, which are the most exposed to the downturn in the industry.
“The pandemic is also delivering a body blow to our business — affecting airline customer demand, production continuity and supply chain stability,” Mr. Calhoun said.
Boeing does not expect air travel to recover to pre-pandemic levels for at least two to three years and said it would likely take several years more for the long-term trend in growth to recover.
The economic toll of the coronavirus pandemic is weighing heavily on the earnings of Airbus, the European aircraft giant, which reported Wednesday a net loss of 481 million euros (about $522 million) in the first quarter of 2020, down from a profit of 40 million euros in the same period a year ago.
The company said that it delivered 122 commercial aircraft compared with 162 in the first quarter of 2019. Around 60 aircraft were not delivered because of the pandemic. Aircraft delivery is a key threshold for earning revenues for aircraft makers.
“We are now in the midst of the gravest crisis the aerospace industry has ever known,” the company’s chief executive, Guillaume Faury, said in a statement. “We’re implementing a number of measures to ensure the future of Airbus.”
Recently, Mr. Faury sent a memo to employees warning that Airbus, with a work force of 134,000, was “bleeding cash at an unprecedented speed.”
Overall revenues at the company declined by 15 percent, to 10.6 billion euros for the quarter. Defense revenues rose by 16 percent to 1.9 billion euros, partly offsetting the drop in commercial aircraft sales.
Volkswagen, the world’s largest carmaker, said that vehicle sales fell 25 percent in the first three months of the year, a vivid indication of the havoc that the coronavirus is causing throughout the auto industry.
The company, based in Wolfsburg, Germany, said that it sold 1.9 million vehicles in the first quarter compared with 2.6 million in the first quarter of 2019. Profit also collapsed, falling more than 80 percent to 517 million euros, or $562 million.
As Volkswagen and other carmakers issue quarterly earnings reports, the scale of the damage from factory shutdowns and dealer closings is becoming clear. Daimler, the maker of Mercedes-Benz cars, said that net profit fell more than 90 percent, to 168 million euros, compared to a year earlier.
A recovery is unlikely to come soon. Volkswagen, which began limited production at its main factory in Wolfsburg on Monday, said in a statement that profit for 2020 would be “severely below” that of 2019, but that it expected to avoid falling into the red.
Catch up: Here’s what else is happening.
The restaurant giant Yum Brands said on Wednesday that same-store sales across its brands had dropped 7 percent in the first quarter. Sales at K.F.C. shrank 8 percent, while Pizza Hut sales dropped 11 percent. But sales at Taco Bell — which has been offering drive-through service throughout the pandemic — rose 1 percent.
Fiesta Restaurant Group, the parent company of Pollo Tropical and Taco Cabana, said it was returning a $15 million loan from the Paycheck Protection Program. Several other large companies, including AutoNation, Shake Shack and the owner of Ruth’s Chris Steak Houses, have also disclosed that they were returning money they had received through the small-business loan program.
General Electric said Wednesday that overall revenue fell 8 percent to $20.5 billion in the first quarter of the year. The coronavirus pandemic especially impacted the aviation division, which saw a 13 percent decline. But the health care sector of the business, which doubled its production of ventilators and increased its manufacturing of other medical equipment used in the diagnosis and treatment of Covid-19, saw revenue increase by 7 percent, to $5.3 billion.
Samsung said on Wednesday that it expected to see a substantial drop in earnings during the second quarter as the coronavirus pandemic hurts demand for its smartphones and televisions. Sales of personal computers and servers have increased as more people work remotely. But the pandemic has slowed demand for smartphones and disrupted the production and logistics networks that manufacturers like Samsung rely on.
A group of several hundred Walmart workers are planning a walkout on Wednesday to protest what they say are unsafe working conditions in the retailer’s stores. Organized by the labor group United for Respect, the “Call Out” is meant to highlight how, some employees say, the retailer has failed to enforce social distancing in many of its stores. Walmart has said it is supplying personal protective gear, like masks, for all its employees and limiting store hours to control crowds.
Reporting was contributed by Taylor Lorenz, Ben Casselman, Jaclyn Peiser, Stanley Reed, Jack Ewing, Ben Dooley, Keith Bradsher, Jeanna Smialek, David Yaffe-Bellany, Jason Karaian, Kate Conger, Mike Isaac, Neal E. Boudette, Michael Corkery, Sapna Maheshwari, Gregory Schmidt, Mohammed Hadi, Katie Robertson, Carlos Tejada, Mike Ives and Kevin Granville.