Moderate But Solid Economic Growth in Q4
Economic momentum moderated in the United States in the fourth quarter, with gross domestic product (GDP) expanding at a 4% quarter-over-quarter annualized basis according to the Bureau of Economic Analysis, as the high-water mark set by third quarter growth left little room for major improvement. While Q4 growth was slightly below the Bloomberg consensus estimate of 4.2%, all private domestic components of the economy were positive despite the holiday-season surge in COVID-19 cases that prompted restrictions on activity.
As shown in the chart, business investment and consumer spending were the primary contributors to GDP, while government spending and net exports were the lone—but modest—detractors.
Housing was another strong contributor to GDP in the fourth quarter, as historically low mortgage rates and the structural shift caused by the “working from home” environment has supported continued strength in the industry. While the pace of growth was lighter than one would hope in the early stages of an economic expansion, the economy’s resilience is notable given the new health restrictions and the delayed fiscal stimulus bill.
However, the Conference Board’s Leading Economic Index is pointing to further moderation of economic growth in the first quarter of 2021, as the index grew 0.5% in December following a 0.7% increase in November. In particular, rising jobless claims and waning consumer confidence weighed on the index and present a challenge for the economy to begin the new year.
“Like we originally expected, the US economy appears to be avoiding a double-dip like we’re seeing in Europe, but growth will be a bit soft until we make greater progress on the rollout of the vaccine, or we can get additional fiscal stimulus passed,” noted LPL Research Chief Market Strategist Ryan Detrick.
The debate over President Joe Biden’s $1.9 trillion stimulus proposal is just getting started, but early signs point toward a deal ultimately being passed in the first quarter—either through a bipartisan vote or through the budget reconciliation process.
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