US Economy Grew at 2.1% Rate in Fourth Quarter
US Economy Grew at 2.1% Rate in Fourth Quarter
US economy grew at 2.1% rate in Q4 but economists are forecasting sharp drop ahead.
By Associated Press, Wire Service Content March 26, 2020, at 10:08 a.m.
SHINGTON (AP) — The economy grew by a moderate 2.1% in the fourth quarter of last year, but many economists believe that will be the last positive growth seen for some time as the country endures a sharp contraction due to the coronavirus.
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The Commerce Department said Thursday in its third and final look at the fourth quarter that growth was unchanged from its previous estimate but that the components were slightly altered with consumer spending slightly stronger but government spending and business investment a bit lower.Many economists believe GDP will turn negative in the current January-March quarter, based on the sudden stop to economic activity that is now occurring. Some see a drop of around 6% with much bigger declines in the second quarter.
“The final Q4 GDP report is nothing more than a nostalgic look in the rear-view mirror that confirmed the economy headed into a deep coronavirus-induced recession with softer momentum,” said Gregory Daco, chief economist at Oxford Economics.
A recession is typically defined as two consecutive quarters of negative GDP and many believe the country has already entered a downturn.
Asked about that Thursday, Federal Reserve Chairman Jerome Powell said the country “may well be in a recession.” But in an interview on NBC’s “Today” program, he said the Fed was prepared to do more and the support efforts from the Fed should help the economy emerge in good shape after what should be a brief downturn.
The Fed has already taken aggressive actions to cut its key interest rate to a record low near zero and provide billions of dollars to backstop critical lending markets.
In a separate report, the government said Thursday that the number of newly laid off workers filing claims for unemployment benefits soared to 3.28 million last week, the highest one-week jump on record.
Asked about the huge increase, Treasury Secretary Steven Mnuchin told CNBC that the $2 trillion stimulus bill which passed the Senate Thursday along with efforts by the Trump administration should ensure laid-off workers get help quickly.
In the April-June quarter, many economists are forecasting the biggest GDP decline with some expecting GDP will be plunge by as much as 35%.
Economists at Wells Fargo forecast that GDP will drop at a rate of 14.7% in the second quarter which would still be the biggest one-quarter decline in the 73 years that the government has been making quarterly GDP estimates.
The reason for expectations of a severe fall in the second quarter are the unprecedented moves the government has made to basically shut down large parts of the U.S. economy in an effort to slow the spread of the coronavirus.
Many of the restrictions are aimed at keeping people in their homes and away from restaurants, bars and movie theaters. Airlines and cruise ships have also seen a plunge in customers as people have cancelled planned trips.
Since the consumer accounts for 70% of economic activity, a big dent in that activity is enough to push the economy off the rails.
If a recession has begun, it would mean the end to the longest U.S. expansion in history, one that was in its 11th year, having started in June 2009 after the country struggled through an 18-month downturn that had begun in December 2007, which had been the deepest recession since the 1930s.
Many analysts believe while this downturn will be sharper, it will be shorter than the country’s last recession.
“This recession has hit so fast, it is making our heads spin,” said Sung Won Sohn, economics professor at Loyola Marymount University in Los Angeles. He said that the speed with which the Federal Reserve has responded to supply liquidity to the financial markets and the size of the stimulus package being debated by Congress should help shorten the length of this downturn.
Sohn said he expected negative GDP in the first, second and third quarters this year but then a return to growth in the October-December period. He is forecasting GDP will rise 8% in the fourth quarter.
Economists at the Conference Board, a business research group, say that the length of the downturn will depend to a great extent on the success officials have in getting the virus under control in the United States.
They have produced three scenarios, a “quick recovery” that assumes the virus peaks in mid-April with economic activity gradually resuming in May. They also have a forecast based on a summertime peak in cases and third scenario based on the peak in cases not occurring until the fall
Under the first and second scenarios, growth returns in the third quarter, but in the third scenario with virus cases not peaking until the fall, growth does not return until the fourth quarter. All three of the scenarios see steep drops of as much as 35.6% in the second quarter.
President Donald Trump is projecting a shorter timeframe for the economic dislocation, saying he believes big parts of the country can be released quickly from the stay-at-home restrictions. He told reporters at the White House on Wednesday that when shops re-open and people go back to work, the economy should rebound “like a rocket ship.”
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Economic Growth in the Last Quarter of 2019
The United States grew by 2.1 percent in the last quarter of 2019, with this growth likely being the last for several coming quarters due to the effects of the Coronavirus. This growth was in line with estimates from the Commerce Department and was aided by slightly stronger consumer spending. The period between January and March 2020 will see a sudden drop in GDP due to the halting of economic activities. The growth in GDP in the last quarter indicates that the United States has been putting to work the abundant factors of production available to it. However, the closing of the economy is likely to cause a recession.
A recession in microeconomics is when the economy records a negative GDP in two consecutive quarters. Economists predict that the GDP is likely to fall by 6 percent by the second quarter. The Federal government is working to ensure that this recession is contained. It is working to keep the economy stable by applying certain fiscal policies. There are ways a government can help spur economic growth even when the economy appears stagnated. Those ways include fiscal policies such as cutting taxes, increased expenditure, or reducing the interest. The government of the United States has increased its spending by providing billions of dollars to critical lending markets to ensure the economy is able to keep business afloat.
The government has also reported that over 3 million people have applied for unemployment benefits after being laid off. In economics, a recession decreases output increasing unemployment, which explains this case. Some economists predict that the economy will plunge by a significant 35 percent. This may be attributed to the governments to move to shut down huge and significant parts of the economy to curb the spread of the Corona Virus.
