US economy's growth moderates to 4% in final quarter

Washington

THE US economy downshifted in the final three months of 2020 after record third-quarter growth as the pandemic battered the labour market and limited Americans' ability and willingness to spend.

Gross domestic product (GDP) expanded at a 4 per cent annualised rate in the fourth quarter, according to a preliminary estimate released by the Commerce Department on Thursday. The median forecast in a Bloomberg survey of economists called for 4.2 per cent.

While output of goods and services was far slower than the record 33.4 per cent rate in the previous three months, the growth pace still exceeded the average of the decade-long expansion that ended early last year.

The deceleration in overall growth largely reflected a sudden moderation in consumer spending after a third-quarter splurge. Personal consumption, the biggest part of the economy, increased at a 2.5 per cent rate, trailing projections for a 3.1 per cent rise.

At the same time, other parts of the economy continued to shine. Non-residential investment expanded at a 13.8 per cent pace, driven by firm spending on equipment, while residential outlays grew 33.5 per cent.

The latest figures highlight the dichotomy of the economic recovery. Households have grown more cautious about spending, most notably on service-related activities but also merchandise.

Yet, still-surprising momentum in home sales is powering construction, and companies continue to invest in equipment. This is helping to sustain a manufacturing rebound at the same time that factories boost output to replenish lean inventories.

The report marks the end of a tumultuous year. The global Covid-19 pandemic and government efforts to curb it sent the economy tumbling into recession in a matter of weeks. While continuing to make headway as the year drew to a close, real GDP still contracted 2.5 per cent in 2020 from the pre-pandemic output peak in the fourth quarter of 2019.

The economy's prospects this year have improved nonetheless. A US$900 billion pandemic relief package was signed in late December that included both stimulus cheques for millions of Americans and financial help for small businesses.

There are expectations for even more aid in the wake of a US$1.9 trillion plan put forth by President Joe Biden. Lawmakers are split. Democrats see the growth slowdown and weakening job market as reason to move forward on a larger aid bill, while many Republicans prefer to wait and allow financial aid from the December bill to filter through the economy as coronavirus vaccinations increase.

The fourth quarter started on solid ground, but a resurgent pandemic quickly led to a re-imposition of restrictions on businesses and activity in some states and cities in November and December. In that two-month period, employers in the leisure and hospitality sector cut hundreds of thousands of jobs - another black eye for an already struggling labour market - and retail sales declined.

The latest GDP figures help explain the Federal Reserve's characterisation of the economy. On Wednesday, after leaving their benchmark interest rate near zero, officials said in a statement that the "pace of the recovery in economic activity and employment has moderated in recent months". BLOOMBERG