The U.S. economy finished its worst year since at least the end of World War II with lower-than-expected growth though economists are still hopeful of a faster recovery in the second half of 2021.
The Commerce Department reported Thursday that gross domestic product grew at a 4% annualized pace in the fourth quarter after a record 33.4% annualized gain in the third quarter fueled by the reopening of the economy in the summer.
Economists had predicted GDP would increase 4.3% in the last three months of 2020. Growth was expected to slow but according to MarketWatch, “the biggest increase so far in coronavirus cases in the early winter made the slowdown more pronounced.”
Consumer spending, the main engine of the economy, rose at a modest 2.5% annual clip in the fourth quarter. Spending had soared by a record 41% in the third quarter, fueled by government stimulus payments and the end of the lockdown.
For 2020 as a whole, the economy contracted 3.5%, the first decline since 2009 in the wake of the financial crisis.
Economists are expecting weak growth in the first quarter of this year but say stimulus checks from the December coronavirus-aid package, the prospect of additional government aid this year, and vaccination programs point to an acceleration of growth later in 2021.
“The bottom line is that the economy remains in a delicate spot,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “The good news is that the light at the end of the tunnel is approaching, as vaccine distribution accelerates and we move closer to herd immunity.”
The International Monetary Fund expects the U.S. economy to grow 5.1% this year, while economists surveyed by The Wall Street Journal projected 4.3% growth.
“There is good evidence to support a stronger economy in the second half of this year,” Federal Reserve Chairman Jerome Powell said Wednesday, though he noted “considerable risks” to the forecast depending on the path of the virus.
According to CNBC, “the biggest challenge is getting people back to work” but gross private domestic investment surged 25.3% in the fourth quarter.