After a year in which the pandemic and politics posed different challenges than the United States had seen in generations, the economy closed in good shape.
Gross Domestic Product, or the sum of all goods and services produced, grew 4.0% in the fourth quarter, slightly below the expectation of 4.3% of economists consulted by Dow Jones. This was the Commerce Department’s initial growth estimate for the quarter.
The annualized pace ended 2020 when GDP fell 3.5% for the full year and 2.5% compared to the fourth quarter of 2019. The economy entered a recession in February, a month before the World Health Organization declared Covid -19 a pandemic. The 3.5% decline is the worst year for the United States since at least the end of World War II.
The economy contacted in a post-Depression record of 31.4% in the second quarter recovered to a gain of 33.4% in the following three months.
Increases in exports, non-residential fixed investment, consumer spending, residential investment and inventories contributed positively to GDP in the fourth quarter, while widespread falls in government spending at the federal, state and local levels weighed on growth.
Personal consumption expenditures account for 68% of all activities in the United States and increased by 2.5% in the fourth quarter. Gross private domestic investment increased 25.3%, while government spending and investment fell 1.2%, largely due to an 8.4% drop in non-defense spending.
Exports, which contribute to GDP, grew by 22%, while imports, which subtract from the total, jumped 29.5%.
Slow start seen for 2021, then acceleration
Activity appeared to slow for the US $ 21.5 trillion economy as the year closed, with economists seeing challenges for early 2021.
A slower-than-expected distribution of Covid-19 vaccines, coupled with a continued increase in cases and restrictions on activity across the country, is likely to mean little growth in the fourth quarter. However, activity is projected to recover strongly at the end of the year, once vaccines are more widely distributed and the economy may return to some normal appearance.
“There is nothing more important to the economy now than people being vaccinated,” Federal Reserve President Jerome Powell said on Wednesday.
“There is good evidence to support a stronger economy in the second half of this year,” he added, although he pointed out “considerable risks” to the forecast depending on the path of the virus.
The biggest challenge is getting people back to work.
Although the economy recovered 12.5 million jobs from May to November, the loss of 140,000 in December, largely due to a decline of almost half a million in the hospitality industry, recalled that many works need to be done. The sector had an unemployment rate of 16.7% in December, compared to 5.7% in February.
Other areas of the economy did better, however. House prices are rising at almost historic levels, savings levels are still high and household balance sheets remain strong.
In addition, Congress approved another stimulus infusion in December, and President Joe Biden plans to spend an additional $ 1.9 trillion, which could be followed by another package later in the year. The Fed is maintaining a low interest rate environment and is buying at least $ 120 billion a month in bonds to keep activity flowing.