The U.S. economy may have grown about 4% in the final three months of 2020, a great showing even in the best of times.
These are not the best of times.
The economy still has lots of ground to make up, for one thing, after the deepest recession on record. And growth slackened off toward the end of 2020 after the coronavirus pandemic roared back and caseloads reached a record high, pointing to a loss of momentum in the economy early in the near year.
The U.S. fourth-quarter report on gross domestic product, due on Thursday, will still offer a useful diagnosis of the economy. It will tell us which parts have mostly recovered and which are still ailing.
economists polled by the Dow Jones/The Wall Street Journal predict a 4.1% increase in fourth-quarter GDP on an annualized basis. While that would mark a steep drop from the 33.4% increase in the third quarter, it still shows the economy forging ahead even as the coronavirus pandemic spiked again.
The details are unlikely to look quite as good.
The biggest component of the U.S. economy, consumer spending, almost certainly softened to mediocre 3% growth or less. Most government aid for the economy had faded away by the start of the quarter and businesses facing new government restrictions laid off more workers at the end of the year.
Business investment in structures such as oil rigs or office buildings was also weak.
Other drags on the economy included lower state and local spending and a bigger international trade deficit.
The economy got some sizzle from a surprising boom in the housing market. Low mortgages rates and people seeking more space outside the cities have lifted sales of previously existing homes to a 14-year high.
Businesses also started to rebuild their inventories — goods for future sale, that is — after letting them draw down early in the pandemic. That’s a good sign for 2021 since it suggests companies are expecting stronger sales.
Indeed, a pair of surveys of business executives in January suggest companies are banking on a better 2021, mostly because of rollout of coronavirus vaccines.
How soon the vaccinations levels are high enough to really help the economy, however, is still an open question.
“We only expect vaccination rates to be high enough to accelerate the economic recovery from mid-2021 onward,” said Cailin Birch, global economist at The Economist Intelligence Unit.
The promise of more federal financial aid from the Biden White House is also adding to the optimism, but the stimulus could take awhile to reach households and businesses. It’s also unclear how much aid Congress will approve.
What could also help the economy after a rocky start in the new year is rising consumer confidence. Americans historically spend more when they are confident and push the economy to greater heights.
A pair of surveys this coming week, consumer confidence and consumer sentiment, will give another glimpse into whether the hopes inspired by the vaccines are outweighing the angst caused by the record number of coronavirus cases.