U.S. GDP Growth Slows In Q4 But Matches Estimates

After reporting a substantial rebound in U.S. economic activity in the third quarter, the Commerce Department released a report on Thursday showing economic growth matched economist estimates in the fourth quarter of 2020.

The Commerce Department said real gross domestic product jumped by 4.0 percent in the fourth quarter after skyrocketing by 33.4 percent in the third quarter. The continued GDP growth came in line with expectations.

Despite the rebound in the second half of the year, GDP for 2020 contracted by 3.5 percent following the 2.2 percent growth seen in 2019.

The GDP growth in the fourth quarter reflected increases in exports, non-residential fixed investment, consumer spending, residential fixed investment, and private inventory investment

The positive contributions were partly offset by decreases in state and local government spending and federal government spending as well as an increase in imports, which are a subtraction in the calculation of GDP.

The notable slowdown in the pace of GDP growth compared to the previous quarter came as consumer spending increased by a relatively modest 2.5 percent in the fourth quarter after spiking by 41.0 percent in the third quarter.

The Commerce Department said an increase in spending on services, particularly healthcare services, was partly offset by a decrease in spending on goods, led by food and beverages.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the slowdown in consumer spending growth reflected a combination of the withdrawal of fiscal support and the resurgence in coronavirus infections.

“With coronavirus cases now falling and Congress agreeing on a new $900bn stimulus late last year, we expect consumption growth to accelerate again in the first half of this year,” Ashworth said.

He added, “First-quarter GDP growth should be 5% and second-quarter growth could be nearer 10%, particularly if Congress can quickly agree on another round of stimulus.”

On the inflation front, the report showed growth in core consumer prices, which excludes food and energy prices, slowed to 1.4 percent in the fourth quarter from 3.4 percent in the third quarter.

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