US GDP growth in Q4 revised up; weekly jobless claims fall

Washington

THE United States economy lost considerable momentum at the end of last year amid a flare-up in new coronavirus infections and delays in providing more fiscal stimulus.

The Commerce Department in its third estimate of fourth-quarter GDP growth said gross domestic product increased at a 4.3 per cent annualised rate. That was up from the 4.1 per cent pace reported last month but a sharp deceleration from the record 33.4 per cent rate logged in the third quarter.

Corporate profits were weak last quarter. After-tax profits without inventory valuation and capital consumption adjustment, which correspond to S&P 500 profits, contracted at a 1.7 per cent rate after accelerating at a 36.1 per cent pace in Q3. Profits fell 3.3 per cent in 2020 after rising 1.8 per cent in 2019.

But that is all history. The economy is forecast to grow by as much as a 7.5 per cent rate in the first quarter. Growth this year is expected to top 7 per cent. That would be the fastest growth since 1984 and would follow a 3.5 per cent contraction last year, the worst performance in 74 years.

"We believe there is ample room for corporate profits to rise as company revenues pick up markedly and margins remain well-supported," said Lydia Boussour, lead US economist at Oxford Economics in New York.

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"Improving health conditions, expanding vaccine distribution, and generous fiscal stimulus will form a powerful growth cocktail."

The upbeat forecast follows data that showed fewer-than-expected Americans filed new claims for unemployment benefits last week as economic activity rebounds after weather-related disruptions in February.

But it would likely take years for the labour market to fully recover from the pandemic's scarring.

Initial claims for state unemployment benefits totalled a seasonally adjusted 684,000 for the week ended March 20, down from 781,000 in the prior week, the Labor Department said on Thursday. Economists polled by Reuters had forecast 730,000 applications in the latest week.

Claims shot up in the second week of March, likely as backlogs after severe winter storms in Texas and other parts of the densely populated South region were processed.

The deep freeze in the second half of February, which also gripped other parts of the country, depressed retail sales, homebuilding, production at factories, orders and shipments of manufactured goods last month.

Warmer weather, the White House's US$1.9 trillion Covid-19 pandemic rescue package and increased vaccinations are expected to boost activity in March.

Treasury Secretary Janet Yellen and Federal Reserve chair Jerome Powell struck an optimistic note on the economy at an appearance before lawmakers this week.

"It is going to be a very, very strong year in the most likely case," Mr Powell said in response to a senator's question on the economic outlook.

Total US personal income rose 6.1 per cent last year to US$19.7 trillion as a surge in pandemic-era aid outpaced gains in wages, property values and other sources of wealth, according to the US Bureau of Economic Analysis.

The dollar amount of so-called transfer receipts, which include Covid relief payments, steered income growth in 26 states while increases in other types of personal income led in 25 including the District of Columbia, the preliminary estimates show.

But the massive fiscal stimulus, which extended government-funded unemployment aid, including a US$300 weekly supplement, through Sept 6, could keep claims elevated as some people reapply for benefits. Rampant fraud has also pushed filings higher. Claims surged to a record 6.867 million in March 2020.

Just over a year after the pandemic barrelled across the US, jobless claims remain above their 665,000 peak during the 2007-09 Great Recession. In a healthy labour market, claims are normally in a 200,000 to 250,000 range.

Employment is 9.5 million jobs below its peak in February 2020. Economists say it could take at least two years for the economy to recover all the 22.4 million jobs lost in March and April last year.

It could even take longer for the labour force participation rate, or the proportion of working-age Americans who have a job or are looking for one, to rebound significantly. The participation rate is near a 47-year low, with women accounting for the biggest share of dropouts. REUTERS, BLOOMBERG