【Economic Perspectives】US Economy – 4Q20 recovery slowed; COVID-19 could continue to drag consumption in 1Q21

The U.S. economy expanded 4.0% in 4Q20, a natural moderation from 3Q’s 33.4% annualized surge. The advance in 4Q20 reflected continued yet slowed economic recovery, as a result of ongoing COVID-19 resurgence and new containment measures. For the full year, GDP contracted 3.5% YoY and current-dollar GDP value was US$ 20.93tn. 4Q GDP value remained below pre-pandemic levels.


  • Personal consumption expenditures decelerated, growing at only 2.5% annualized rate in 4Q20, which missed market expectation. PCE on durable goods recorded flat QoQ growth while PCE on nondurable goods and services decreased 0.7% and increased +4.0% in 4Q20, all decelerating sharply from record rate in the previous quarter. Breaking down PCE on services, we find the recovery of recreation, transportation and food & recreation services stalled again, attaining 60%-80% of pre-pandemic levels in 4Q20. At more frequent time intervals, retail sales dropped for three consecutive months, posting -0.1%/-1.4%/-0.7% seasonally adjusted MoM change in Oct/Nov/Dec 2020 amid resurging COVID-19 infections, exhaustion of previous government support, and worsening job market situation (initial jobless claims have been on the rise since Dec 2020).


  • Mixed performance of other components. 1) Residential investment continued to stand out, up 33.5% QoQ at annualized rate and contributing 1.29ppt to 4Q GDP growth. Existing home sales stayed strong. 2) Nonresidential investment also maintained expanding pace at 13.8% annualized QoQ growth driven mostly by equipment spending. 3) Trade dragged GDP in 4Q20 by 1.52ppt because of a strong rebound in imports which outpaced export recovery. 4) Government spending declined modestly mainly in terms of federal nondefense investment and consumption expenditures at state and local governments.


  • COVID-19 likely to weigh on economic performance in 1Q21. According to Google mobility tracker, retail & recreation activities have been trending down since the end of last year with the resurgence of COVID-19 and stricter containment measures. We believe COVID-19 may continue to drag service consumption. Momentum on durable goods consumption may also slow down. Broad-based declines, however, are not likely because the economy is not abruptly locked down as it was earlier last year. Google workplace mobility tracker is now staying largely stable. We expect to see more boost in 2Q21 resulting from speedier rollout of COVID vaccines, accommodative policy monetary environment and new fiscal stimulus plan.


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