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Summary
- US economy contracts by 3.5 percent in 2020, biggest plunge since WWII.
- Number of jobless claims reduced to 847,000 in the week ending January 23.
- The International Monetary Fund (IMF) forecasts the US economy to grow by 5.1%.
The US economy has registered its biggest decline since World War II, shrinking by 3.5 percent, due to the COVID-19 pandemic but the recovery is on track, the government said.
The first half of the year has been the worst for the economy, but it managed to limp back in the second half, helping to recover some of the losses.
The economy rebounded rapidly in the final months to narrow the gap in the fourth quarter, with a 2.5 percent decline, compared to the figure in the same period in 2019.
But more efforts were needed to reach the levels of the pre-pandemic.
It was for the first time the US economy had contracted since the 2009 financial crisis.
Third & Fourth Sees Some Recovery
The fourth-quarter GDP grew at an annual rate of 4 percent, complementing a record 33.4 percent growth rate witnessed in the third quarter, the Commerce Department said on Thursday.
Wall Street economists anticipate a quicker recovery once the pandemic is brought under control.
Reacting to the government GDP figures, chief economist at the global ratings agency S&P in the US, Beth Ann Bovino, exuded confidence of recovery but cautioned that it could be a slow process.
She added that some sectors such as services and energy may have been the worst hit. But some segments, such as technology, logistics, and online retail, showed resilience.
Furthermore, consumer spending reduced to 2.5 percent during the holiday season following a trail-blazing growth in the third quarter, which saw a 41 percent growth.
The fourth quarter also saw a peak in coronavirus cases across the country, with tighter restrictions in public places, which discouraged people to venture out for shopping.
Compared with the third quarter spending on goods, the fourth quarter saw an overall decline.
Spending on durable goods, such as home entertainment, fitness, and office supplies, had increased in the third quarter, but they saw a decline in the subsequent period, according to government data.
But robust corporate earnings and investment in residential projects have kept the economy going, and it will have a positive influence in the year ahead, said James Knightley of ING Financial Markets.
Investments in the housing market saw strong growth, rising by 33.5 percent, in the fourth quarter. Spending on IT, software, and equipment also increased at a rate of 13.8 percent in the quarter.
Further, the huge sums of money being pumped-in for vaccination programs, economic stimulus, and household aid packages, etc. will help the economy to bounce back sooner than later, he added.
Positive Labor Report
In a separate announcement, the Labor Department said that requests for unemployment benefits have reduced last week, indicating a reduction in the number of layoffs. The number of jobless claims reduced to 847,000 in the week ending January 23, down from 914,000 a week before.
The latest Labor report brought some good news for the economy, which had been devastated by the repeated closures and virus threat. The International Monetary Fund (IMF) forecasts the US economy to grow 5.1% in 2021, taking a cue from the momentum generated since Q3.
And as progress in Covid vaccination gains momentum, and the situation improves, companies are expected to restart hiring, which will help improve the economy.
