Key Highlights
- Commerce Department reported GDP grew less than 1% in Q4
- GDP -2.5% smaller at end of 2020 than at beginning
- Economic bright spots include housing, investment and goods spending
The US economy transitioned from being manufacturing-based to becoming services-based in the late 1950’s. In fact, services represented 67% of our GDP in 2020.
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All that was fine until the COVID pandemic pummeled our economy, particularly in face-to-face services jobs such as leisure and hospitality. Some 22M jobs were lost in March-April and though we’ve regained some 11M of those jobs, our unemployment rate continues at an elevated rate.
GDP rose just +1% in Q4 2020 from +7.5% in Q3
The Gross Domestic Product(GDP) rose just +1% in Q4 2020, a sharp slowdown from Q3’s +7.5% growth rate. As rising COVID cases and fading government forced businesses to shut down and consumers pulled back on spending, personal income actually fell in Q4.
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The Labor Department reported that for the week of January 23, 873,966 filed first-time claims for unemployment benefits plus 426,856 new claims were filed under the federal pandemic jobless program. Additionally, for the week ending January 9, 1.5M people applied for extended state benefits after their regular allotment of unemployment insurance expired.
“We need the service sector to come back for the economy to more broadly come back.”
According to Rubella Farooqu, chief US economist with High Frequency Economics, “We need the service sector to come back for the economy more broadly to come back…everything goes back to the health crisis. Once you get most of the population vaccinated, that’s a completely different picture.”
Increased number of those applying (1.5M) for extended state benefits concerning
The increased number of people applying for extended state benefits (1.5M) is concerning. “The longer people are unemployed, the harder it is to get back into the work force,” said Kathy Bostjancic, chief economist with Oxford Economics. “The longer this continues, the more there is a heightened risk of medium-term (economic) scarring.”
There are bright spots – housing, investment, spending on goods.
But, there are some bright spots in the economy. Robert Rosener, senior US economist with Morgan Stanley,said, “It’s worth emphasizing how much other sectors of the economy really kicked in to offset the softening consumption.”
The economy’s brightest lights are housing, investment and spending on goods being the brightest. Housing and residential fixed investment rose +7.5% in Q4 while there was a +3.3% growth in business investment. Spending on goods was less spectacular but still well above pre-pandemic levels. All of these statistics are based on the latest report on the GDP from US Commerce Department.
Thanks to the US Labor Department, US Commerce Department, NPR and The New York Times.
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