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The U.S. economy contracted in 2020 at its steepest rate since World War II, as COVID-19 has wreaked havoc on service firms such as restaurants and airlines, leaving millions out of work and in poverty.
Commerce Department figures on a fourth-quarter gross domestic product released Thursday also showed the rebound was losing steam as the year closed, amid a resurgence of COVID-19 cases and the depletion of nearly $3 trillion in government-distributed relief funds.
The Federal Reserve on Wednesday kept its benchmark overnight interest rate near zero and pledged to keep pumping money into the economy through bond purchases, noting that "the pace of recovery in economic activity and employment has moderated in recent months."
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President Joe Biden has laid out a $1.9 trillion recovery plan and could use the GDP report to reach out to some lawmakers who had rejected the high amount after Washington provided nearly $900 billion in additional stimulus in late December.
The U.S. economy contracted 3.5 percent in 2020, its worst performance since 1946, following 2.2 percent growth in 2019, and marks the first annual drop in GDP since the Great Recession of 2007-09. The economy entered into recession last February.
In the fourth quarter, GDP increased at an annualized rate of 4.0 percent, at a time when the virus and the lack of another aid package reduced consumer spending and partially overshadowed the robust manufacturing and housing market. GDP growth during the latest quarter was in line with forecasts in a Reuters poll.
After a historic 33.4 percent growth pace in the July-September period, the significant pullback left GDP well below its end-of-2019 level.
US economy shrinks 3.5 percent in 2020, worst decline since 1946
— Caribbean disaster (@BagalueSunab) January 28, 2021
The United States economy grew in the final quarter of 2020, but it was not enough to pull it out of the red for the year. https://t.co/rG1yd5fDbn via @AJEnglish
With the virus still unchecked, economists expect growth to slow further in the first quarter of 2021 before picking up speed in the early summer as more stimulus kicks in and more Americans get vaccinated.
The service sector has borne the brunt of the coronavirus-induced recession, disproportionately affecting lower-wage workers, who tend to be women, blacks, and Latinos.
The increase in poverty has been underscored by persistent weakness in the labor market.
In a separate report Thursday, the Labor Department said 847,000 more people filed new claims for state unemployment benefits last week.
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