2020 ended for the American economy with a 3.5% contraction, the first decline in the nation’s economic activity since the 2009 crisis and the steepest drop in the country’s gross domestic product (GDP) since the ’46 crisis. However, 2021 has more optimistic prospects for economic recovery than the dismal 2020.
The International Monetary Fund (IMF) expects the United States to grow by 5.1%, but the poll of economists consulted by The Wall Street Journal expects the American economy to grow by about 4.3%. Historical U.S. GDP growth has been 3.12%.
In 2020, during the fourth quarter, consumer spending and investment slowed after a significant rebound during the third half of the year. The reason: during the holiday season, several states restricted mobility, thus impacting the American economy.
A report released on Thursday from the Commerce Department estimated that total U.S. production of goods and services slowed sharply during the October-December quarter, following a record 33.4% increase in output during the April-June quarter.
Factors that will contribute to the growth of the American economy
The Labor Department indicated that the number of citizens filing for unemployment benefits fell last week, indicating a decrease in layoffs caused by the shutdowns. Still, the labor market remains convalescent due to the December tailspin caused by quarantines imposed in several states.
New jobless claims fell to 847,000 from 914,000 last week. These claims have remained above the pre-pandemic peak of 695,000, although below the number of claims resulting from the enacted shutdowns. Nearly 22 million Americans lost their jobs during the first few months of the pandemic.
While in some sectors job losses have been severe, particularly in service industries, once vaccinations become more widely distributed and demand for services increases, economists expect employers in high-turnover sectors, such as bars and restaurants, to resume hiring quickly.
One of the factors driving growth this year will be the amount of savings accumulated by many Americans who received government assistance. The U.S. personal savings rate – the percentage of a person’s income remaining after consumption and taxes – soared to a record 32.2% in April, up from March, when savings accounted for only 12.2% of income.
A survey by the New York Federal Reserve found that 36.4% of people saved their stimulus check while 34.6% used the money to pay down debt. Only 18.2% of respondents used the money from the check to buy essential goods, while 7.7% used the money for lavish spending, and the remaining 3.2% donated the money.
Many states, such as California and New York, have lifted the restrictions, which has allowed the return of activities in several sectors. Other states, such as those in the south, did not impose restrictions on mobility, thus avoiding a major impact on the local economy.
The housing market remains strong and housing prices returned to significant growth, as many families have invested in the purchase of new homes, taking advantage of low interest rates and the fact that many of their members now work entirely from home.
Economic recovery will depend on the ability of the Biden-Harris administration to effectively deliver coronavirus vaccines throughout the population. Mass vaccination efforts have been seriously behind target, causing some analysts to temper their growth expectations for the first quarter of 2021.