The U.S. economy was 3.5% smaller at the end of December than it was at the start of the year, the Commerce Department announced Thursday, making 2020 the worst year for growth since 1946, when the nation was demobilizing after World War II.
Economic growth slowed significantly in the last three months of the year as Covid-19 surged, with GDP growth registering just 1% in the fourth quarter, or 4% on an annualized basis. The lackluster results followed record-setting growth of 7.5% in the third quarter (33.4% on an annualized basis) and a record-breaking decline of 9.5% in the second quarter (31.4% on an annualized basis).
The slowdown was driven in large part by the resurgent coronavirus, which further damaged bars, restaurants and other face-to-face businesses. In addition, billions in federal aid expired in the fall, removing a tailwind that helped growth in the summer. The swoon “wasn’t just Covid — it was the lack of fiscal support,” Aneta Markowska, chief financial economist at Jefferies, told The Washington Post.
Mixed messages: The Biden administration cited the report as proof that the economy needs more support. “The message is clear,” National Economic Council Director Brian Deese said in a statement. “Without swift action, we risk a continued economic crisis that will make it harder for Americans to return to work and get on back their feet. The cost of inaction is too high.”
Senate Majority Leader Chuck Schumer (D-NY) made the same point. “Given these economic numbers, the need to act big and bold is urgent,” he said. “Given the fact that the GDP sunk by 3.5 percent last year, we need recovery and rescue quickly.”
But some analysts aren’t so sure. “I don’t think this is going to convince anybody one way or the other,” Jay Bryson, chief economist at Wells Fargo, told Bloomberg. “People who are skeptical about more fiscal relief are going to say ‘well, the economy’s growing.’ People who want to see more fiscal relief will say ‘yeah, but it only grew 4% at an annualized rate.’ It’s not a game changer.”
Jobless claims top 1 million: New jobless claims provided another piece of evidence on the state of the economy Thursday, coming in a bit lower than expected, with 847,000 people filing for unemployment aid last week at the state level, the Labor Department announced Thursday. Another 427,000 applied for Pandemic Unemployment Assistance, bringing the total to nearly 1.3 million. Despite beating expectations – analysts expected closer to 875,000 claims at the state level – the numbers show that the job market is still struggling.
Earlier this week, Federal Reserve Chair Jerome Powell said that the coronavirus is still a major factor influencing the economy. “A resurgence in recent months in Covid-19 cases, hospitalizations and deaths is causing great hardship for millions of Americans and is weighing on economic activity and job creation,” Powell said.