The economy cooled in the fall, but 2020 proved better than feared.
G.D.P. grew in the fourth quarter but isn’t back to pre-pandemic levels.
2019 Q4 LEVEL
$20 trillion
+1.0%
Q3 to Q4
15
10
Gross domestic product, adjusted for inflation and seasonality, at annual rates
5
’15
’16
’17
’18
’19
’20
2019 Q4 LEVEL
$20 trillion
+1.0%
Q3 to Q4
15
10
Gross domestic product, adjusted for inflation
and seasonality, at annual rates
5
’15
’16
’17
’18
’19
’20
Source: Bureau of Economic Analysis
By Ella Koeze
The U.S. economic recovery stumbled but didn’t collapse at the end of last year, setting the stage for a much stronger rebound this year.
Gross domestic product rose 1 percent in the final three months of 2020, the Commerce Department said Thursday. That represented a sharp slowdown from the previous quarter, when business reopenings led to a record 7.5 percent growth rate. On an annualized basis, G.D.P. increased 4 percent in the fourth quarter, down from 33.4 percent in the third.
Looking at the quarter as a whole obscures the full extent of the slump: Many analysts believe economic output declined outright in November and December, as rising coronavirus cases and waning government aid led consumers to pull back on spending and forced businesses to shut down, in some cases for good. Personal income actually fell in the fourth quarter.
But four weeks into January, the new year looks different. Aid passed by Congress in December has begun to flow in enhanced unemployment benefits, small-business loans and direct payments to households. Two runoff elections in Georgia delivered Democratic control of the Senate, making further rounds of assistance more likely. And the rollout of coronavirus vaccines, though slower than hoped, offers the prospect that hotels, bars and other businesses hurt by the pandemic will see customers return later this year.
“That fiscal stimulus is helping push the train of the economy through the tunnel, and the light on the other side is widespread vaccination and inoculation,” said Nela Richardson, chief economist at the payroll processing firm ADP.
The late-year slump was driven by a slowdown in consumer spending. Spending grew less than 1 percent in the fourth quarter, compared with 9 percent in the third. But parts of the economy that are less exposed to the pandemic helped pick up the slack. The housing market continued to surge, partly because of low interest rates, and business investment was strong, a sign of confidence among corporate leaders.
The economy is still in a significant hole. Measured against the final quarter of 2019, G.D.P. ended 2020 down 2.5 percent, making it the second-worst calendar year on record after a 2.8 percent contraction in 2008. Comparing 2020’s output over all with the previous year’s, G.D.P. fell 3.5 percent, the worst on record. The economy has regained roughly three-quarters of the output lost during the collapse last spring, and only a bit more than half of the jobs.
G.D.P. is rebounding faster than it did in the Great Recession.
+15%
2001
1990
Cumulative percent change in
G.D.P. from the start of the
last five recessions
+10
1980
+5
2007
0
–5
2020
–10
Final quarter
before
recession
4 quarters
into recession
16
8
12
+15%
2001
1990
+10
Cumulative percent change in G.D.P.
from the start of the last five recessions
1980
+5
2007
0
–5
2020
–10
Final quarter
before
recession
4 quarters
into recession
8
12
16
Note: Gross domestic product is adjusted for inflation and seasonality. Recessions are labeled by the year they started.
Source: Bureau of Economic Analysis
By Ella Koeze
Still, the rebound has been significantly stronger than most forecasters expected last spring. In May, economists at the Congressional Budget Office estimated that G.D.P. would end the year down 5.6 percent and wouldn’t reach its pre-pandemic level until well into 2022. Now, most forecasters expect it to hit that benchmark this year.
Last year’s overall showing was “bad but not historically bad, and not as bad as what was experienced in the Great Recession, and not nearly as bad as what was expected midyear,” said Jason Furman, a Harvard economist who ran the Council of Economic Advisers under President Barack Obama.
The stronger-than-expected rebound is partly a reflection of businesses’ flexibility — retailers embraced online sales, restaurants built outdoor patios, and factories reorganized production lines to allow for social distancing. But it is also a result of trillions of dollars in federal aid, which kept households and small businesses afloat when much of the economy was shut down. Despite the loss of millions of jobs, personal income and saving both rose in 2020.
“The fiscal stimulus package was not perfect,” said Stephanie Aaronson, an economist at the Brookings Institution. “But the truth is both Congress and the Fed acted very, very quickly, and I think that did save the economy from a much worse outcome.”
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