The numbers: The U.S. economy has grown at a sluggish 4% rate in the last three months of 2020, as a record wave of coronavirus cases halted recovery and pushed the roster for a broader setback until later this year.
The pandemic hit the economy hard last year. The gross domestic product, the official scorecard for the US economy, shrank by 3.5% to show the largest contraction since 1946.
GDP is expected to decline in the last three months of 2020 to a record 33% year-on-year profit in the third quarter, linked to the reopening of the economy in the summer following the closure of businesses around the to combat pandemic in spring. However, the largest increase so far in coronavirus cases in early winter has more pronounced the slowdown.
Governments imposed some restrictions on businesses and customers stayed away in the fourth quarter, leading to more layoffs and the first decline in employment since the onset of the pandemic last spring. The greatest damage occurred in December.
Yet, in many ways, the economy performed better than expected, as individuals and companies responded better to the crisis than earlier in the year. Consumer spending and business investment both rose, and a boom in the housing market did not disappoint.
However, the economy still has a lot of ground to make up, and a complete recovery can only take place before the vaccines become widespread and the coronavirus pandemic disappears.
“There is nothing more important to the economy at the moment than people being vaccinated,” Federal Reserve Chairman Jerome Powell told a news conference on Wednesday.
Read: Durable goods orders and business investments are climbing for the eighth month in a row
What happened: Consumer spending, by far the largest part of the economy, has risen in the last three months of the year with a modest annual cut of 2.5%.
Expenditure rose a record 41% in the third quarter, fueled by government stimulus payments and the end of a U.S. closure.
More layoffs and the temporary expiration of federal aid for unemployed workers halted spending near the year-end.
However, business investment was much stronger than expected. Expenditure on equipment increased by almost 25%, and to a surprise, expenditure on structures such as office buildings increased by 3% in the fourth quarter.
Companies also continued to rebuild supplies after declining during the worst pandemic. The change in inventory value increased by $ 48.3 billion in the fourth quarter.
Housing was another strong artist. Investments in new homes jumped by 33.5% as builders tried to meet the growing demand.
The lowest mortgage rates in modern times have attracted swarms of buyers, although higher house prices this year could be a deterrent if it continues to rise.
Government spending fell by 1.2%, mainly due to declines at the state and local levels. Many local governments have cut spending in response to a decline in tax revenue.
International trade was a problem as it often is. Exports rose by 22%, but imports rose by a faster 30%. A larger trade deficit detracts from GDP.
The inflation rate annualized by 1.5% in the fourth quarter. However, inflation is almost always low and poses little risk to the economy.
See: MarketWatch Coronavirus Recovery Tracker
The whole picture: The U.S. economy got another big blow from the coronavirus late last year, but it was harder.
Governments imposed fewer and fewer restrictions on business and most companies were able to better adapt and improvise. The strong increase in business investment is a good sign.
The resilience of the economy should be a good starting point for a faster recovery later this year, as vaccinations widen, the pandemic evaporates and Washington approves more federal relief. President Biden promises trillions of dollars in extra aid.
However, a broader recovery can only take place in spring or summer. GDP is expected to grow even weaker in the first quarter.
What are they saying? “The end result is that the economy stays in a fine spot,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “The good news is that the light is approaching at the end of the tunnel as the spread of vaccines accelerates and we move closer to herd immunity.”
Market reaction: The Dow Jones Industrial Average DJIA,
and S&P 500 SPX,
rose in Thursday trading.