US economy worse than WWII 1:14
(CNN Business) -
(CNN Business) -
The U.S. economy grew at an annualized and seasonally adjusted rate of 4% in the fourth quarter of 2020, just as economists had predicted, the Commerce Department reported Thursday.
However, that didn't make up for a bad first quarter and a historic, terrible second quarter.
In 2020 overall, GDP decreased 3.5% compared to the previous year.
This is the worst fall since 1946.
It was the first time that the country's GDP fell since 2009, the year it fell by 2.5% during the financial crisis.
This graph shows the percentage change in GDP over the years, without seasonal adjustment.
Source: Federal Reserve Bank of St. Louis, US Bureau of Economic Analysis.
Graphic: Tal Yellin, CNN.
If it weren't for the current crisis, a 4% quarterly growth rate would be a great number.
However, the country is still far from its pre-pandemic economic glory and this pace of growth will simply not be enough.
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In other words, America's GDP stood at 20.9 trillion at the end of 2020, compared with 21.4 trillion the year before.
Last year saw the worst economic shock in history, and America's GDP, the broadest measure of economic activity, reacted in response.
The trajectory of GDP in the year
GDP contracted a record 31.4% on an annualized basis between April and June after the initial shutdowns due to the pandemic.
In the next three months, it recovered at a record annualized rate of 33.4%, but that was not enough to offset the damage that had already been done.
For 2021 and the Biden administration, Thursday's report is a call to action and a reminder that the economic crisis that caused the pandemic is far from over.
Federal Reserve Chairman Jerome Powell reiterated Wednesday that the recovery of the US economy depends on the trajectory of the virus.
Throughout the country, communities remain under various closure protocols that seek to help curb the spread of the disease, which weighs on economic activity.
In addition, millions of people remain unemployed as a result of the pandemic, which devastated industries based on social contact like hospitality.
Consumer spending grew at an annual rate of just 2.5%, compared with an annual rate of 41% in the previous quarter.
This reflects the new confinements and the increase in infection rates in the last three months of the year.
Despite the slowdown, increased spending helped GDP grow in the fourth quarter.
An increase in commercial and housing investments also contributed to growth.
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However, there is still a lot to worry about: Disposable income fell 9.5% on an annualized basis in the fourth quarter of last year, while the personal savings rate remained high at 13.4%.
For an economy driven by consumer spending, it is not a good sign for people to leave their money in the bank.
Overall, personal income also declined, primarily due to declining benefits as the CARES Act assistance programs came to an end.
This could be reversed in the future with the stimuli that have been agreed since then and those that the Biden government is considering.
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Conditions may not change much in the first quarter of 2021, according to economists.
But things should improve as vaccine rollout continues and warmer spring weather offers consumers more freedom to venture outside, said PNC chief economist Gus Faucher.
"With effective vaccines offering the possibility of a return to normal later this year and the intention of the Biden administration for more fiscal stimulus, we believe that GDP growth will reach 6.5% this year," he said. in a note Paul Ashworth, chief US economist at Capital Economics.
GDP United States