U.S. Economy Grew 4.1% in Q4 2020, Slightly Higher than Initial Estimate
- Real GDP grew 4.1% (annualized) in the fourth quarter, up very slightly from the advance estimate of 4.0%. Economic activity was 2.4% below its year ago level.
- Consumer spending growth was revised down slightly to 2.4% (versus 2.5% previously), due to a slightly larger drop in goods spending (-0.9% versus -0.4% prev.). Growth in services spending was unchanged at 4.0%.
- Non-residential fixed investment was revised very slightly upwards to 14.0% gain (from 13.8%), driven by even stronger spending on equipment (25.7% versus initial estimate of 24.9%). Outlays on intellectual property products were also revised higher (8.4% from 7.5%). Leaning against these upward revisions, nonresidential structures investment was revised down to 1.1% (from 3.0%).
- Residential investment was another source of upward revision to headline GDP, estimated to have grown 35.8% in the fourth quarter (up from 33.5% initially). This mainly reflected stronger investment in new single-family housing.
- Revisions to imports and exports were negligible, while investment in inventories was revised up slightly, contributing 1.1 percentage points to growth (1% previously).
- The drop in government spending was only modestly smaller (-1.1% versus -1.2%), on a smaller-than-initially-reported drop in spending at the state and local level (-1.2% versus -1.7%).
- The revisions from the advance to the second GDP release were relatively minor. Upward revisions to investment more than offset the downward revision to consumer spending. Tomorrow’s personal income and spending data for January is more important for setting the tone for the first quarter of 2021. Retail sales were up strongly in January, and the spending data will let us know how spending on services fared, and how strong personal incomes were, given the $600 payments that were distributed in the month. As of now, the economy is tracking around a 4% to 5% annualized pace in the first quarter, a step up from the fourth quarter as fiscal support and reduced restrictions buoy activity.
- Beyond Q1, we expect economic growth will kick into a higher gear over the remainder of the year (see forecast update). The vaccine rollout and the expected passage of major elements of the Biden Administration’s American Rescue Plan (see report) will provide crucial support for the economy to recover more of its pandemic-suppressed activity.