After a year in which a pandemic and politics created challenges that the US has not faced in generations, the economy closed fairly well.
Gross domestic product, or the sum of all goods and services, rose 4.0% in the fourth quarter, slightly lower than the 4.3% expectation of economists surveyed by Dow Jones. This was the Department of Commerce’s first estimate of growth for the quarter.
The annualized pace ended a 2020 in which full-year GDP fell by 3.5% and by 2.5% from the fourth quarter of 2019. The economy went into recession in February, a month before the World Health Organization COVID-19 declared a pandemic. . The 3.5% decline is the worst year for the US since the end of World War II.
The economy made contact with a post-depression record of 31.4% in the second quarter and then rebounded to a 33.4% rise in the following three months.
Increases in exports, non-residential fixed capital formation, consumer spending, residential investment and inventories contributed positively to fourth quarter GDP, while across the board declines in government spending at federal, state and local levels weighed on the growth.
Personal consumption spending makes up 68% of all US operations and was up 2.5% in the fourth quarter. Gross private domestic investment grew 25.3%, while government spending and investment declined 1.2%, largely due to a 8.4% decline in non-defensive spending.
Exports, which contribute to GDP, grew by 22%, while imports, which subtract from the total, grew by 29.5%.
Seen slow start for 2021, then acceleration
The activity of the US $ 21.5 trillion economy appeared to slow as the year drew to a close, as economists see challenges ahead of 2021.
A slower-than-expected roll-out of the Covid-19 vaccines, coupled with a continued rise in cases and restrictions on activity across the country, is likely to mean little growth in the fourth quarter. However, activity is expected to rebound sharply later in the year, once vaccines become more widely distributed and the economy can get back to normal.
“There is nothing more important to the economy now than getting people vaccinated,” Jerome Powell, chairman of the Federal Reserve, said Wednesday.
“There is good evidence of a stronger economy in the second half of this year,” he added, although he noted that there are “significant risks” associated with the forecast, depending on the path of the virus.
The biggest challenge is to get people back to work.
Although the economy reclaimed 12.5 million jobs from May to November, the December 140,000 loss, largely due to a drop of nearly half a million in the hospitality industry, is a reminder that much remains to be done. The sector had an unemployment rate of 16.7% in December, compared to 5.7% in February.
However, other parts of the economy have fared better. House prices are rising almost historically, savings are still high and household balance sheets remain strong.
In addition, Congress approved another stimulus infusion in December, and President Joe Biden is looking to spend an additional $ 1.9 trillion, which could be followed by yet another package later this year. The Fed maintains a low interest rate environment and buys at least $ 120 billion in bonds every month to keep activity going.
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