Further signs of waning momentum came in initial jobless benefit claims, which rose by 1.43m in a second successive rise after 15 weeks of decline.
Jobs figures show more than 12m Americans are still unemployed compared to before the pandemic and Federal Reserve chairman Jay Powell has warned of a “slowing in the pace of the recovery”.
Richard Flynn at broker Charles Schwab said: “With jobless claims at historically elevated levels, it is evident the US recovery may be in for a bumpy ride.”
The data capped a dire day for economic news as Germany suffered a record 10.1pc slump, while Belgium and Austria’s output shrank by 12.2pc and 10.7pc respectively.
The stunning US collapse followed a 5pc fall in the opening quarter when the pandemic pushed the economy into lockdown in March.
The slump in consumer activity that followed – with spending tumbling at an annualised pace of 34.6pc – was the biggest driver of the second quarter fall. Consumer spending accounts for 70pc of the US economy.
One of the few areas of activity to expand was government spending, reflecting the $2 trillion relief package approved by Congress. This included a raft of measures such as $1,200 payments to individuals, aid to small businesses and extra unemployment benefits.
But the $600 a week top-up to payments – which has paid two-thirds of claimants more in benefits than in their previous jobs – is due to expire on July 31, threatening another income shock to millions of Americans.
Talks are stalled over a new Republican package that proposes to slash payouts by two-thirds to $200 a week and eventually replace them with a benefit equivalent to 70pc of workers’ previous wages.
ING’s US economist James Knightley warned that the more precarious financial position of many households, alongside the accelerating virus, would threaten the US recovery over the summer.
“Covid-19 is far from beaten and while there is optimism about a vaccine, the timing and its efficacy are still unknown,” he said.