The U.S. economy contracted at its sharpest pace since World War 11 in 2020, as COVID-19 ravaged services businesses like restaurants and airlines, throwing millions of Americans out of work and into poverty.
The economy contracted 3.5 per cent in 2020, the worst performance since 1946.
That followed 2.2 per cent growth in 2019 and was the first annual decline in Gross Domestic Product (GDP) since the 2007-09 Great Recession. The economy plunged into recession last February.
A report on Thursday from the Commerce Department’s snapshot of fourth-quarter GDP showed the recovery from the pandemic losing steam.
This comes as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly three trillion dollars in relief money from the government.
The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero and pledged to continue injecting money into the economy through bond purchases.
It showed “the pace of the recovery in economic activity and employment has moderated in recent months.”
President Joe Biden has unveiled a recovery plan worth 1.9 trillion dollars, and could use the GDP report, the survey said.
Biden is expected to lean on some lawmakers who have balked at the price tag soon after the government provided nearly 900 billion dollars in additional stimulus at the end of December.
In the fourth quarter, GDP increased at a 4.0 per cent annualised rate as the virus and lack of another spending package curtailed consumer spending.
The pandemic partially overshadowed robust manufacturing and the housing market. GDP growth for the last quarter was in line with forecasts in a Reuters poll of economists.
The big step-back after a historic 33.4 per cent growth pace in the July-September period left GDP well below its level at the end of 2019.
With the virus not yet under control, economists are expecting growth to further slowdown in the first quarter of 2021, before regaining speed by summer as the additional stimulus kicks in and more Americans get vaccinated.
The services sector has borne the brunt of the coronavirus recession, disproportionately impacting lower-wage earners, who tend to be women and minorities.
That has led to a so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out.
The stars of the recovery have been the housing market and manufacturing as those who are still employed seek larger homes away from city centres.
The stars of the recovery also have been the buying of electronics for home offices and schooling. Manufacturing’s share of GDP has increased to 11.9 per cent from 11.6 per cent at the end of 2019.
A survey last week by professors at the Universities of Chicago and Notre Dame showed poverty increased by 2.4 per cent points to 11.8 per cent in the second half of 2020, boosting the ranks of the poor by 8.1 million people.
Rising poverty was underscored by persistent labour market weakness. In a separate report on Thursday, the Labour Department said 847,000 more people filed new claims for state unemployment benefits last week.
The economy shed jobs in December for the first time in eight months. Only 12.4 million of the 22.2 million jobs lost in March and April have been recovered.