The American economy posted 4% growth in the fourth quarter as the recovery from the depths of the pandemic decelerated into the end of 2020, the Commerce Department reported on Thursday.
While a growth rate at such heights would normally be reason to celebrate, it represents a major disappointment and a hit to the nascent recovery given the current conditions in the economy and the social distortion that characterized the close of 2020.
That disappointment was largely a function of the resurgence in the pandemic and the long delay in another round of fiscal aid because of political polarization. Still, considering the $908 billion in fiscal aid approved in late December and likely rounds of additional aid, stimulus and spending on infrastructure, we anticipate that growth will rebound at a 5.4% pace this year.
During the final three months of 2020, personal consumption increased at a 2.5% pace, largely because of a rebound in demand for services of 4%, while outlays on durables were flat and nondurables declined by 0.7%.
There still is prodigious pent-up demand that will help fuel growth over the next two to four years.
That the public pulled back should be of little surprise, given the social dissonance of the past few months, and it represents a setback in the pace and intensity of the recovery.
But there still are prodigious pent-up demand and more than $1 trillion in excess savings compared to the long-term pre-pandemic levels. For this reason, we expect a robust and sustained increase in outlays on goods and services over the next two to four years.
The clear bright spot in the data is the 25.3% increase in gross private investment, which was fueled by a 33.5% increase in residential investment. Fixed investment increased by 18.4% and nonresidential investment advanced 13.8%. Outlays on structures increased by 3%, equipment by 24.9% and intellectual property by 7.5%.
Imports increased by 29.5% and exports 22%. Government consumption declined by 1.2% as federal spending declined by 0.5%. Nondefense spending fell by 8.4% while state and local spending dropped by 1.7%. The decline in nondefense spending was largely responsible for the 9.5% decline in disposable personal income.
Alternative metrics of growth reaffirm the top-line estimate. Real final sales increased by 3%, gross domestic purchases 5.4%, final sales to domestic purchasers 44% and final sales to private domestic purchasers increased by 5.6%.
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