After a year in which a pandemic and politics, unlike the US, had posed challenges for generations, the economy closed in quite good shape.
The gross domestic product or the sum of all goods and services rose in the fourth quarter by 4.0% and was thus slightly below the expectations of 4.3% of the economists surveyed by Dow Jones. This was the Department of Commerce’s first estimate for the quarter.
The annualized pace ended 2020 with GDP declining 3.5% for the full year and 2.5% from the fourth quarter of 2019. The economy fell into 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 US since at least the end of World War II.
The economy hit a record 31.4% post-Depression in the second quarter and then rebounded to 33.4% in the following three months.
Rise in exports, non-residential fixed investment, consumer spending, residential investment and inventory all contributed positively to GDP in the fourth quarter, while the general decline in government spending at the federal, state and local levels weighed on growth.
Personal consumption spending accounts for 68% of all US activity and grew at a rate of 2.5% in the fourth quarter. Private gross inland investment rose 25.3%, while government spending and investment fell 1.2%, mainly due to an 8.4% plunge in non-defense spending.
Exports that contribute to GDP increased by 22%, while imports, subtracted from the total, increased by 29.5%.
Activity in the $ 21.5 trillion economy appeared to be slowing towards the end of the year as economists see challenges early in 2021.
A slower-than-expected rollout of Covid-19 vaccines, coupled with a sustained surge in cases and restrictions on activity across the country, should mean low growth in the fourth quarter. However, activity is expected to rebound strongly over the course of the year once vaccines become more widespread and the economy can return to normal.
“There is nothing more important to the economy than people who are vaccinated,” said the chairman of the US Federal Reserve, Jerome Powell, on Wednesday.
“There is good evidence of a stronger economy in the second half of the year,” he added, although he noted “significant risks” to the forecast depending on the virus route.
The biggest challenge is getting people back to work.
Although the economy regained 12.5 million jobs from May to November, the loss of 140,000 in December, largely due to a decline of nearly half a million in the hospitality industry, was a reminder that there is still much to be done. The sector had an unemployment rate of 16.7% in December compared with 5.7% in February.
However, other sectors of the economy have done better. House prices are rising at near historic levels, savings are still high and household balances remain strong.
Additionally, 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 maintains a low interest rate environment and buys at least $ 120 billion worth of bonds every month to keep the flow of activity going.
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