EconoFACTS

January 28, 2021 | 09:12

U.S. Real GDP (2020 Q4 Advance) — Four-warned

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

The U.S. economy slowed a little more than expected in the final quarter of 2020, a fitting end to an awful year. Real GDP downshifted to a 4.0% annualized rate after rebounding 33.4% in Q3, with activity fading fast through the period as new pandemic restrictions took effect. Consumer spending slowed to a 2.5% pace, as ebbing income-support payments and weaker employment pushed personal income down 7% annualized. Personal spending was supported by increased demand for health-care services. A still-high personal savings rate (13.4%) should provide fuel for released pent-up demand this year. One positive surprise in the quarter is that commercial construction rose 3.0%, which added to another hefty gain in equipment spending to lift overall nonresidential investment by 13.8%...clearly businesses are looking past the second wave to a stronger post-pandemic future. Meantime, residential construction blasted 33.5% higher on a hot housing market. However, declines in both federal and municipal government spending and a wider international trade deficit carved into growth (the latter by 1.5 ppts).

For all of 2020, real GDP fell 3.5%, the most since 1946. It is now 2.5% below the pre-virus 2019Q4 level, which is much less than the hit most other advanced countries took, reflecting lighter restrictions, a heftier fiscal response, and rapid growth in a larger high-tech sector.

Growth looks to ebb to 1.0% annualized in Q1, before sprinting higher in the spring and summer as the vaccine rollout paves the way for easing restrictions. Some recent lessening of constraints on indoor dining and other in-person services in California and other states might get the ball rolling in a more positive direction. This morning's 67,000 drop in weekly initial jobless claims to 847,000 is encouraging, but the labour market will still take a long time to heal. It all comes down to the still largely unpredictable course of this pandemic, at least in the near term. But we remain cautiously optimistic for 2021, expecting growth of 5.0%...the best since 1984.

Table 1 - United States — Real GDP

(quarter/quarter % change : s.a.a.r.)

Source: BMO Economics, Haver Analytics