The economic system closes 2020 with a revenue of lower than 4%

After a year in which a pandemic and politics, unlike the United States, had posed challenges for generations, the economy closed 2020 in quite good shape.

The gross domestic product, or the sum of all goods and services produced, rose by 4% in the fourth quarter and was thus slightly below the expectations of 4.3% of the economists surveyed by Dow Jones. Thursday’s report was the Commerce Department’s first estimate for the quarter.

Also on Thursday, the Department of Labor reported that initial unemployment benefits last week were 847,000, less than the 875,000 expected by economists polled by Dow Jones

In the trade report, the annualized pace ended 2020 with full year GDP falling by 3.5% and by 2.5% from the fourth quarter of 2019. The economy fell into recession in February, a month before the World Health Organization declaration, 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.

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

Personal consumption spending accounts for 68% of all US activity and increased 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% drop in non-defense spending.

Exports that contribute to GDP increased by 22%, while imports, subtracted from the total, increased by 29.5%.

Slow start for 2021, then acceleration

Activity in the $ 21.5 trillion economy appeared to be slowing towards the end of the year as economists see challenges early in 2021.

“Growth is likely to be very weak in the first quarter of 2021 and be less than 1% on an annual basis,” said Gus Faucher, chief economist at PNC. “With record case numbers earlier in the year, consumers have become more cautious and states have placed additional restrictions on economic activity, albeit more deliberately than in the early stages of the pandemic. But growth should accelerate through the rest of the world.” by 2021. “

A slower-than-expected launch of vaccines, coupled with a continued spike in cases and restrictions on activity across the country, is likely to curb growth in the fourth quarter and extend into the early part of 2021. However, activity is likely to rebound strongly later in the year when vaccines become more prevalent and the economy can return to normal.

“There is nothing more important to the economy than people who get vaccinated,” said Jerome Powell, chairman of the US Federal Reserve, 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, mainly 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 to near historic levels, savings are still high and household balance sheets remain strong. The personal savings rate remained high in the fourth quarter at 13.4%.

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 is sticking to 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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