After a year in which a pandemic and politics faced challenges for generations as opposed to the US, the economy closed pretty well.
Gross domestic product, or the sum of all goods and services produced, rose at a rate of 4.0 in the fourth quarter, slightly below the 4.3% expectation of economists polled by Dow Jones. This was the initial estimate of the Department of Commerce for the quarter.
The annualized rate concluded a 2020 year that reduced total GDP for the full year by 3.5% and by 2.5% from the fourth quarter of 2019. The economy fell into a recession in February, a month before the World Health Organization declared Covid-19 a pandemic. . The 3.5% drop is the worst year for the US since at least the end of World War II.
The economy hit a record 31.4% post-depression in the second quarter, rising to 33.4% in the next three months.
Increased exports, fixed investment abroad, consumer spending, residential investment and inventory contributed positively to GDP for the fourth quarter, while the decline in government spending at the federal, state and local levels was cross-cutting.
Personal spending is 68% of all U.S. activity and rose at a rate of 2.5% in the fourth quarter. Gross private domestic investment rose 25.3%, while government spending and investment fell 1.2%, mainly due to a 8.4% drop in non-defense spending.
Exports, which contribute to GDP, grew by 22%, while imports, which deducted from the total, increased by 29.5%.
Slow start seen for 2021, then acceleration
Activity seems to be slowing for the $ 21.5 billion US economy as the year draws to a close, as economists see challenges for the early part of 2021.
A slower-than-expected rollout in Covid-19 vaccines, coupled with a steady increase in cases and restrictions on activity nationwide, is likely to mean little growth in the fourth quarter. However, activity is expected to rebound sharply later in the year, once the vaccines become more widespread and the economy returns to normal.
“There is nothing more important to the economy than people being vaccinated,” Federal Reserve Chairman Jerome Powell said Wednesday.
“There is good evidence to support a stronger economy in the second half of this year,” he added, although he noted ‘significant 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, mainly due to a decline of almost half a million in the hospitality industry, reminded me that a lot of work needs to be done word. The sector has an unemployment rate of 16.7% in December compared to 5.7% in February.
However, other parts of the economy fared better. House prices are rising at almost historic levels, savings levels are still high and household balance sheets remain strong.
In addition, Congress approved a stimulus infusion again in December, and President Joe Biden wants to spend another $ 1.9 billion that could follow another package later. The Fed maintains a low interest rate environment and buys at least $ 120 billion a month in bonds to keep the activity flowing.
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