WASHINGTON – The U.S. economy grew at an annual rate of 4.3% in the final three months of 2020, slightly faster than previously estimated, as recovery expectations for 2021 rise along with vaccinations and the provision of nearly $2 trillion in additional government support.
GDP in the October-December quarter rose from an estimated rate last month of 4.1%, the Commerce Department reported Thursday. The upward revision reflected stronger inventory restocking by businesses.
For the entire year, the GDP shrank by 3.5%, the largest annual decline since a plunge of 11.6% in 1946 when the U.S. demobilized after World War II. The 3.5% drop was unchanged from the previous estimates.
Economists are looking for a huge rebound this year, helped by government support packages including a $1.9 trillion package signed by President Joe Biden on March 11 that is delivering $1,400 payments to individuals, extending emergency unemployment until early September and providing billions of dollars in relief to state and local governments.
Economists believe all the government relief measures will boost GDP in the current January-March quarter to 5% or higher. They are forecasting growth for the entire year of around 6% or even higher, which would the strongest performance since a 7.2% GDP gain in 1984 when the economy was coming out of a deep recession.
“The economy is poised to see the fastest rate of real GDP growth since the early 1980s as improving health conditions, expanding vaccine distribution and generous fiscal stimulus will form a powerful cocktail," said Lydia Boussour, lead U.S. economist at Oxford Economics.
Boussour forecast GDP growth for the full year of 7% with annualized growth rates close to 10% in the spring and summer.
There are emerging threats, however, including problems with global supply chains. Some of the biggest have shown up in the auto industry where some automakers have had to cut back production because of a shortage of computer chips.
But at the moment, forecasters believe the strength coming from an improving vaccine situation and further government stimulus will offset the supply chain issues.
The GDP report Thursday showed that corporate profits fell 1.4% in the fourth quarter after a big 27.4% increase in the third quarter as the economy first began to recover from the pandemic.
Gus Faucher, chief economist at PNC Finncial, predicted that corporate profits would increase this year as economic activity picks up.
Thursday's GDP report was the government's third and final look at the fourth quarter, closing out a year with record swings in activity as .
GDP fell at an annual rate of 5% in the first quarter of 2020, as the COVID-19 pandemic ended the country's record-long economic expansion, which was in its 11th year. GDP plunged by a record 31.4% rate in the April-June quarter and then rebounded by a record rate of 33.4% in the third quarter before slowing to the 4.3% gain in the fourth quarter.
Economists say the quarterly GDP changes will be far less dramatic this year but should show a steadily improving economy as long as the virus cases remain under control and supply chain problems are resolved.
“The economy is poised for robust growth,” said Mark Zandi, chief economist at Moody’s Analytics. He pointed to what he called a “potpourri of help including substantial stimulus checks, more unemployment insurance, rental, childcare and food assistance and aid to small businesses, airlines, schools and state and local governments.”