US economy likely had its worst year since World War II

The US economy is projected to have contracted by as much as 3.6 percent last year. That would be the worst performance since 1946, and the first annual decline in GDP since the Great Recession, economists say.

The sharp contraction would follow a 2.2 percent growth in 2019. Economists surveyed by Reuters estimate the fourth quarter GDP to have expanded at a four percent annualized rate. They said that Covid-19 and the lack of another stimulus package diminished consumer spending, and partially overshadowed the robust manufacturing and housing markets.

The US Federal Reserve on Wednesday left its benchmark overnight interest rate near zero and pledged to continue injecting money into the economy through bond purchases. The regulator said “the pace of the recovery in economic activity and employment has moderated in recent months.”

President Joe Biden has unveiled a recovery plan worth $1.9 trillion, after the government provided nearly $900 billion in additional stimulus at the end of December.

“Last year was awful for the economy,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “This was the first service industry recession in recent memory where a lot of jobs were lost.”

Economists project a further slowdown of the economy in the first quarter of 2021, before it regains speed by summer as the additional stimulus kicks in and more Americans are vaccinated. 

“No doubt it will be a challenging few months as the vaccines struggle to get distributed and lockdowns remain in place,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “However, as Covid gets under control, we expect growth to ratchet higher, running at around a seven percent pace in the second half of the year.”

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The Labor Department is expected to report on Thursday that 875,000 more Americans filed for unemployment benefits last week.

A survey by professors at the University of Chicago and the US’s University of Notre Dame showed that poverty increased by 2.4 percentage points to 11.8 percent in the second half of 2020, adding some 8.1 million people to the ranks of the poor.

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