The economy closes 2020 with a gain of 4% below expectations

After a year in which a pandemic and politics have posed challenges unlike the United States for generations, the economy has shut down in fairly good shape.

Gross domestic product, or the sum of all goods and services, grew at a rate of 4.0% in the fourth quarter, slightly below expectations of 4.3% of economists polled by Dow Jones. This was the Commerce Department’s initial estimate of growth for the quarter.

The annualized pace closed a year 2020 which saw GDP decline overall by 3.5% for the full year and 2.5% from the fourth quarter of 2019. The economy fell into recession in February, a months before the World Health Organization declared the Covid-19 pandemic. The 3.5% drop is the worst year for the United States since at least the end of World War II.

The economy contacted at a post-depression record of 31.4% in the second quarter then rebounded to a gain of 33.4% over the next three months.

Increases in exports, non-residential fixed investment, consumer spending, residential investment and inventories contributed positively to GDP for the fourth quarter, while widespread decline in government spending at federal, state and local levels weighed on the growth.

Personal consumption spending accounts for 68% of all activity in the United States and grew at a 2.5% pace in the fourth quarter. Gross private domestic investment jumped 25.3%, while government spending and investment fell 1.2%, largely due to an 8.4% drop in non-defensive spending.

Exports, which add to GDP, rose 22%, while imports, which subtract from the total, jumped 29.5%.

Activity appeared to slow for the US economy to $ 21.5 trillion at the end of the year, as economists see challenges for the start of 2021.

A slower-than-expected rollout of Covid-19 vaccines, coupled with a continued increase in cases and activity restrictions across the country, is likely to result in weak growth in the fourth quarter. However, activity is expected to rebound strongly later in the year, once vaccines are more widely distributed and the economy can return to some semblance of normalcy.

“There is nothing more important to the economy now than people getting 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, while noting “considerable risks” to the forecast depending on the trajectory of the virus.

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 drop of almost half a million in the hospitality sector, recalled that a lot of work remains to be done. The sector had an unemployment rate of 16.7% in December, down from 5.7% in February.

However, other sectors of the economy fared better. House prices are rising to near historic levels, savings levels are still high and household balance sheets remain strong.

On top of that, Congress approved another stimulus injection in December, and President Joe Biden plans to spend an additional $ 1.9 trillion that could be followed by another package later in the year. The Fed is maintaining a low interest rate environment and buying at least $ 120 billion a month in bonds to keep activity going.

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