Fourth Quarter GDP in the US Came in Below Expectations

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On Thursday, the Commerce Department reported that US gross domestic product came in below economist predictions.

However, the economy performed better than most economists expected when COVID-19 shut down the country back in the spring of 2020. On Thursday, the Commerce Department reported that GDP grew 4 percent in the fourth quarter. Economists polled by Dow Jones forecasted that US GDP would grow 4.3 percent in the quarter.

The annualized GDP data showed a 3.5 percent decline for the full year and 2.5 percent from the fourth quarter of 2019. The 3.5 percent annualized decline is the worst year for the US since the end of WWII. The economy contracted at a 31.4 percent rate in the second quarter but rebounded to a 33.3 percent gain for the rest of the year.

Exports, nonresidential fixed investment, consumer spending, residential investment and inventories all increased in quarter 4. However, decreases in government spending at the federal, state and local levels hindered growth.

The following are key data points from the Commerce Department's report:

  • Personal consumption expenditures increased 2.5 percent in the fourth quarter
  • Gross private domestic investment increased 25.3 percent
  • Government spending and investment fell by 1.2 percent, mostly due to the 8.4 percent decline in non-defense spending
  • Exports increased by 22 percent
  • Imports increased by 29.5 percent

Economists don't see the US economy starting 2021 off at a record pace.

“Growth is likely to be very weak in the first quarter of 2021, below 1% annualized,” said Gus Faucher, chief economist at PNC. “With record-high caseloads early in the year consumers have turned more cautious and states have re-imposed additional restrictions on economic activity, although in a more targeted fashion than in the early stages of the pandemic. But growth should pick up through the rest of 2021.”

Currently, the slow rollout of vaccines and rising COVID-19 cases are dragging the economy's potential.

“There’s nothing more important to the economy now than people getting vaccinated,” Federal Reserve Chairman Jerome Powell said on Wednesday. “There is good evidence to support a stronger economy in the second half of this year,” he added.

We can only hope that 2021 will fare better than 2020.

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