Stuck in the grip of a viral pandemic, the United States economy registered a 3.5-percent contraction in 2020, even if it grew at a 4-percent annual rate in the final three months of last year.
The coronavirus disease 2019 (Covid-19) inflicted the worst economic freeze since the end of World War II, leaving tens of millions of Americans jobless.
Thursday’s report from the Commerce Department estimated that the nation’s gross domestic product — its total output of goods and services — slowed sharply in the October-December quarter from a record 33.4 percent surge in the July-September quarter. That gain had followed a record-shattering annual plunge of 33.4 percent in the April-June quarter, when the economy sank into a free-fall.
The outlook for the 2021 economy remains hazy. Economists warn that a sustained recovery won’t likely take hold until vaccines are distributed and administered nationwide and government-enacted rescue aid spreads through the economy — a process likely to take months.
“The economy is still struggling,” said Mark Zandi, chief economist at Moody’s Analytics. “How strong the economy is later this year will depend on how the virus evolves and the effectiveness of the vaccines and mitigation efforts.”
Zandi predicted that the economy will expand at a 4.4 percent annual rate in the current quarter and achieve annual growth rates later this year above 5 percent. But he cautioned that his forecast is based on the enactment of further federal economic relief, and he expects Biden initially to win congressional approval for only about half his $1.9 trillion proposal.
About 5 million jobs, Zandi estimates, will never return, forcing the unemployed in such industries as restaurants and bars to find work in other sectors.
“We have lost so many low-paying service jobs at restaurants, hotels and in transportation,” said Sung Won Sohn, an economics and business professor at Loyola Marymount University in Los Angeles.
On Thursday, the government reported that applications for unemployment benefits declined last week but remained at a historically high 847,000, evidence that companies keep cutting jobs as the pandemic continues to rage. Before the virus erupted in the United States in March, weekly applications for jobless aid had never topped 700,000, even during the Great Recession.
The Federal Reserve took note of the economic threats after its latest policy meeting ended Wednesday. The Fed kept its benchmark interest rate at a record low near zero and stressed that it would keep pursuing its low-rate policies until a recovery is well underway. The Fed acknowledged that the economy has faltered in recent months, with hiring weakening especially in industries affected by the raging pandemic, notably restaurants, bars, hotels and others involved in face-to-face public contact.
Hiring in the United States has slowed for six straight months, and employers shed jobs in December for the first time since April. The job market has sputtered as the pandemic and colder weather have discouraged Americans from traveling, shopping, dining out or visiting entertainment venues. Retail sales have declined for three straight months.
Last month, the government enacted a $900 billion rescue aid package, and President Joe Biden is pushing for lawmakers to follow up by approving his $1.9 trillion plan for further economic help. Biden’s proposal has met resistance, though, from many Republicans who contend that the cost is too high and some of its benefits misplaced.