The U.S. economy continued to grow in the fourth quarter of 2020 but was remained below pre-recession levels. This quarter’s growth reflected both the economic recovery from the current recession and the ongoing impact of the COVID-19 pandemic.
According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 4.0% in the fourth quarter of 2020, after a 33.4% increase in the third quarter. It marked the second consecutive quarter of growth after the sharpest contraction on record in the second quarter of 2020. This quarter’s growth rate was above NAHB’s forecast of a 2.8% increase.
For the full year, real GDP contracted 3.5% in 2020, compared with a 2.2% increase in 2019. This marked the first contraction since 2009 and the worst recession since 1946. It was close to NAHB’s 2020 forecast of -3.6%.
The increase in real GDP in the fourth quarter of 2020 reflected increases in personal consumption expenditures (PCE), which alone accounts for about 70 percent of the overall economy, as well as gains for private inventory investment, nonresidential fixed investment, residential fixed investment and exports. Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 2.5%, following an increase of 41.0% in the third quarter. While expenditures on services increased 4.0% at an annual rate, led by health care (+12.4%), goods spending decreased 0.4% at an annual rate, mainly reflecting decreases in food and beverages (-2.5%) and furnishings and durable household equipment (-5.6%).
While nonresidential fixed investment rose 13.8%, residential fixed investment (RFI) increased 33.5% in the fourth quarter, after a 68.2% increase in the third quarter of 2020. The increase in nonresidential fixed investment reflected increased in all components, led by transportation equipment (+64.0%). The increase in residential fixed investment primarily reflected investment in new single-family housing (+103%).
Both federal government spending and state and local government spending decreased in the fourth quarter. Meanwhile, imports, which are a subtraction in the calculation of GDP, increased 29.5%.
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