2019 Q4 LEVEL
$20 trillion
+1.0%
Q3 to Q4
Gross domestic product, adjusted for inflation and seasonality, at annual rates
2019 Q4 LEVEL
$20 trillion
+1.0%
Q3 to Q4
Gross domestic product, adjusted for inflation
and seasonality, at annual rates
The U.S. economic recovery stumbled but didn’t collapse at the end of last year, setting the stage for a much stronger rebound this year.
Gross domestic product rose 1 percent in the final three months of 2020, the Commerce Department said Thursday. That represented a sharp slowdown from the previous quarter, when business reopenings led to a record 7.5 percent growth rate. On an annualized basis, G.D.P. increased 4 percent in the fourth quarter, down from 33.4 percent in the third.
Looking at the quarter as a whole obscures the full extent of the slump: Many analysts believe economic output declined outright in November and December, as rising coronavirus cases and waning government aid led consumers to pull back on spending and forced businesses to shut down, in some cases for good. Personal income actually fell in the fourth quarter.
But four weeks into January, the new year looks different. Aid passed by Congress in December has begun to flow in enhanced unemployment benefits, small-business loans and direct payments to households. Two runoff elections in Georgia delivered Democratic control of the Senate, making further rounds of assistance more likely. And the rollout of coronavirus vaccines, though slower than hoped, offers the prospect that hotels, bars and other businesses hurt by the pandemic will see customers return later this year.
“That fiscal stimulus is helping push the train of the economy through the tunnel, and the light on the other side is widespread vaccination and inoculation,” said Nela Richardson, chief economist at the payroll processing firm ADP.
The late-year slump was driven by a slowdown in consumer spending. Spending grew less than 1 percent in the fourth quarter, compared with 9 percent in the third. But parts of the economy that are less exposed to the pandemic helped pick up the slack. The housing market continued to surge, partly because of low interest rates, and business investment was strong, a sign of confidence among corporate leaders.
The economy is still in a significant hole. Measured against the final quarter of 2019, G.D.P. ended 2020 down 2.5 percent, making it the second-worst calendar year on record after a 2.8 percent contraction in 2008. Comparing 2020’s output over all with the previous year’s, G.D.P. fell 3.5 percent, the worst on record. The economy has regained roughly three-quarters of the output lost during the collapse last spring, and only a bit more than half of the jobs.
Cumulative percent change in
G.D.P. from the start of the
last five recessions
Final quarter
before
recession
4 quarters
into recession
Cumulative percent change in G.D.P.
from the start of the last five recessions
Final quarter
before
recession
4 quarters
into recession
Still, the rebound has been significantly stronger than most forecasters expected last spring. In May, economists at the Congressional Budget Office estimated that G.D.P. would end the year down 5.6 percent and wouldn’t reach its pre-pandemic level until well into 2022. Now, most forecasters expect it to hit that benchmark this year.
Last year’s overall showing was “bad but not historically bad, and not as bad as what was experienced in the Great Recession, and not nearly as bad as what was expected midyear,” said Jason Furman, a Harvard economist who ran the Council of Economic Advisers under President Barack Obama.
The stronger-than-expected rebound is partly a reflection of businesses’ flexibility — retailers embraced online sales, restaurants built outdoor patios, and factories reorganized production lines to allow for social distancing. But it is also a result of trillions of dollars in federal aid, which kept households and small businesses afloat when much of the economy was shut down. Despite the loss of millions of jobs, personal income and saving both rose in 2020.
“The fiscal stimulus package was not perfect,” said Stephanie Aaronson, an economist at the Brookings Institution. “But the truth is both Congress and the Fed acted very, very quickly, and I think that did save the economy from a much worse outcome.”
Consumer spending, the most important engine of the U.S. economy, slowed considerably in the fourth quarter of last year. But the Commerce Department report on gross domestic product shows that while the economic damage from the latest wave of the virus was severe, it was relatively contained.
Spending on services rose less than 1 percent in the final quarter of the year, down from 8 percent in the third quarter, as the surge in coronavirus cases led states and cities to impose restrictions on businesses and caused consumers to pass up restaurant meals, in-store shopping and other interactions.
But sectors less exposed to the direct effects of the pandemic didn’t experience as severe a slowdown.
“It’s worth emphasizing how much other sectors of the economy really kicked in to offset the softening in consumption,” said Robert Rosener, senior U.S. economist at Morgan Stanley.
Housing has been a particular bright spot, fueled in part by rock-bottom interest rates. Residential fixed investment, which includes home construction and renovations, rose 7.5 percent in the fourth quarter.
Spending on goods has been strong during the pandemic, as consumers cooked at home and replaced gym memberships with Peloton bikes. Goods spending fell slightly in the fourth quarter, but remained well above pre-pandemic levels.
Perhaps the most encouraging sign in the data released Thursday was the 3.3 percent growth in business investment. It suggests that companies had to scramble to meet demand that was stronger than they anticipated — or that they are getting ready for a strong rebound in sales later this year.
Constance L. Hunter, chief economist at the accounting firm KPMG, said investments made during the pandemic could pay long-term dividends, both for individual companies and for the broader economy, in the form of increased productivity.
“One thing we can say about Covid is it jolted us into a need to adopt technology, and in particular digital technology,” she said.
New claims for unemployment fell last week, the government reported on Thursday, but the elevated levels are fueling worries about prolonged damage inflicted on the labor market by the pandemic and the slow rollout of vaccines.
A total of 873,966 workers filed first-time claims for state unemployment benefits for the week that ended Jan. 23, the Labor Department said, while an additional 426,856 new claims were filed under a federal pandemic jobless program that covers freelancers, part-time workers and others normally ineligible for state jobless benefits. Neither figure is seasonally adjusted. On a seasonally adjusted basis, new state claims totaled 847,000.
The figures for newly filed claims are below the staggering levels of last spring, when the coronavirus started its march across the map, but they continue to dwarf previous records.
The impact of the virus on the service sector, particularly leisure and hospitality, is extracting the heaviest toll. “We need the service sector to come back for the economy more broadly to come back,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
Although the Conference Board reported on Tuesday that consumer confidence edged up in January, views of the labor market’s current health dropped. The percentage of respondents saying jobs are “plentiful” declined, and the share saying that “jobs are hard to get” rose.
“Everything goes back to the health crisis,” Ms. Farooqi said, “Once you get most of the population vaccinated, that’s a completely different picture.”
The number of people applying for extended state benefits — which only kick in after jobless workers have exhausted their regular allotment of unemployment insurance — also rose above 1.5 million for the week that ended Jan. 9, up about 100,000 from the week before.
“The longer people are unemployed, the harder it is to get back into the work force,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “The longer this continues, the more there is a heightened risk of medium-term scarring.”
The $900 billion pandemic relief bill signed into law last month has provided a bridge of support, but provisions specifically extending relief to jobless workers are scheduled to expire in mid-March.
President Biden has proposed a $1.9 trillion emergency relief package that includes a $400 weekly unemployment insurance supplement, although Republicans and a handful of Democratic lawmakers have balked at the cost of the overall proposal.
Job recruiters are accustomed to seeing a pattern in late January: When the holiday crush and seasonal gigs end, job-hunting surges. But not this year.
The demand is there, but many of the job seekers aren’t, said Julia Pollak, a labor economist with the hiring site ZipRecruiter.
“In our marketplace over the past three weeks, employer activity has been completely exuberant, it has surpassed our forecasts,” Ms. Pollak said. But the ranks of “job seekers are way, way, way lower than usual.”
Some have argued that generous jobless benefits are discouraging people from working. But Ms. Pollak disagrees, saying the main reason for the low number of applications is the continuing fallout from the coronavirus pandemic.
“Many people who should be looking for jobs aren’t even eligible for benefits, like millions of women who left the labor market for child care,” she said. And some are staying home because of other family responsibilities, or out of concern about getting sick if they re-enter the work force, particularly with the arrival of a more infectious coronavirus strain, she said.
Ernie Tedeschi, an economist and head of fiscal analysis at Evercore ISI, described the labor market as “treading water right now.”
The pandemic and the cold winter months in parts of the country continue to hobble the economy’s recovery, he said, and vaccine distribution has been too slow to have much effect.
At ZipRecruiter, the strongest demand for jobs can be found in delivery services, e-commerce, big-box and grocery stores and warehouse clubs as well as tax preparation, mortgage origination and home building.
Industries like hospitality, leisure, travel and others that involve face-to-face contact have incurred the biggest job losses, but in one way that lopsidedness is reassuring, Mr. Tedeschi said. Those are businesses that one would expect to be down because of the pandemic. It would be more worrying if the weakness had spread throughout the labor market, a sign of longer-term scarring in the economy, he said.
Cecilia Rouse, a Princeton University economist who is President Biden’s pick to lead the White House Council of Economic Advisers, told a Senate committee this morning that Congress “must take action” to shore up an economic recovery that has left many Americans behind.
“As deeply distressing as this pandemic and economic fallout have been,” she said, “it is also an opportunity to rebuild the economy better than it was before — making it work for everyone by increasing the availability of fulfilling jobs and leaving no one vulnerable to falling through the cracks.”
In a hearing before the Senate Banking Committee, Ms. Rouse said that if confirmed, she will make it a priority for the council to gather more detailed data, in order to better see how economic policies are affecting nonwhite Americans in particular.
“Too often economists focus on average outcomes, instead of examining a range of outcomes,” she said. “As a result, our analyses tell us about average economic growth and the middle of the distribution — but as our economy grows more and more unequal, that analysis fails to capture the experience of the many people who are left behind, particularly people of color.”
Ms. Rouse is a labor economist whose work includes a longtime focus on education and discrimination. If confirmed, she would be the first Black economist ever to chair the council. She previously served as a council member under former President Barack Obama.
Her testimony comes at a precarious moment in the economic recovery from the pandemic and she is likely to face questions about the $1.9 trillion stimulus package that Mr. Biden has proposed to help get the virus under control and aid struggling families and workers.
Data released on Thursday morning showed that the economic recovery stumbled but didn’t collapse at the end of last year and that it could have a strong rebound in 2021 once the virus is arrested. Gross domestic product rose 1 percent in the final three months of 2020, the Commerce Department said Thursday.
Republicans have already expressed skepticism about whether the economy needs a $1.9 trillion jolt given the $900 billion stimulus package that Congress passed in December. But with millions still out of work and the virus not yet under control, many economists say workers and businesses will need more help to make it through.
After a tumultuous day on Wednesday, trading on Wall Street began Thursday with a measure of calm.
The S&P 500 rose more than 1 percent in early trading, following a 2.6 percent drop on Wednesday, its worst single-day decline since October.
The gains came after data showed that the U.S. economic recovery continued, albeit at a slower pace, in the fourth quarter. Though gross domestic product ended 2020 down 2.5 percent from a year earlier, the rebound has been significantly stronger than most forecasters expected last spring.
European markets opened lower before recovering some of their losses, and Asian markets closed in the red.
Still, investors are facing a host of concerns, which has increased volatility. There is uncertainty about whether the market can sustain its relentless rise of recent months, and whether asset bubbles are starting to form. They are also worried about whether the Biden administration will be able to quickly pass an ambitious stimulus spending program or be forced to pare it back to get a bill through a Senate without a solid Democratic majority. And investors are watching the pace of the coronavirus vaccine rollout, wary of delays that could push back the economic recovery around the world.
“The assumption was by the time we got to midyear we were fully back to normal and that’s being questioned,” said Karen Ward, a strategist at J.P. Morgan Asset Management.
“The whole timeline of vaccine rollout and that point of normality is going back a few months,” she added. “The markets are pretty comfortable waiting as long as they know that the economic cost that’s incurred in the interim is absorbed by governments.”
Unease also stemmed from the shocking run-up in shares of companies with big brand names but uncertain prospects, like GameStop, the video game retailer; AMC, the movie theater chain; and BlackBerry, once the maker of hand-held devices that no financial professional would leave the office without. The surge in those shares pointed to frothy conditions in financial markets, suggesting a bunch of amateurs investors could take the reins and force steep losses on established hedge funds.
Shares of a number of companies reacted to earnings reports. Tesla and Apple both dropped after their reports, while Facebook rose.
Europe
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The Stoxx Europe 600 rose 0.1 percent.
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The FTSE 100 in Britain fell 0.5 percent, the DAX in Germany rose 0.2 percent, and the CAC 40 in France rose 0.9 percent.
Asia
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In Japan, the Nikkei 225 index tumbled 1.5 percent.
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China-related stocks also suffered. The Shanghai Composite Index fell 1.9 percent, while Hong Kong shares were down 2.6 percent.
It’s called a short squeeze, and it involves investors betting on which way a stock will go — up or down. These bets are placed by buying stock options, and the options allow an investor to make money even if the stock itself loses value. If the stock goes up in value, the bets can become losers. Investors who bet against a stock are called “shorts.”
In the case of GameStop, the video game retailer many professional investors had written off, the shorts include at least two big hedge funds. Now a band of day traders, fueled in part by a message board on Reddit, are putting the squeeze on Wall Street.
The Times’s Matt Phillips explains what’s going on.
American Airlines’ share price jumped on Thursday as small investors who have roiled other stocks in recent days turned their attention to the struggling airline.
The company’s stock was up as much as 30 percent at one point before giving up most of those gains. American was trading at about $18, up around 10 percent, as of 11 a.m. The airline also reported financial results for 2020 on Thursday, saying it lost nearly $8.9 billion last year.
On the social media site Reddit, traders on the Wall Street Bets page, a community known for irreverent market discussions, have caused shares in other troubled companies, such as GameStop and AMC, to surge in recent days as they sought to take on some of Wall Street’s most sophisticated investors. In one post on Wednesday night, a Reddit user suggested American should be next because many professional investors had bet against its stock.
On a call with analysts and reporters on Thursday, American’s chief executive, Doug Parker, said the airline would not comment on the stock activity.
“Before I begin my prepared remarks, I want to pre-emptively state that we will not be commenting nor answering questions on the recent activity in our stock price,” Mr. Parker said. “As a rule, we don’t speculate on the day-to-day movements in our stock price and we’re going to stick to that rule today.”
The Reddit traders have focused on companies that are the focus of short sales, a maneuver investors use to bet that a company’s share price will fall.
If they are right, short sellers can reap handsome profits. But if the stock prices soar, they can run up huge losses. By driving up the price of stocks that have been heavily shorted, small investors coordinating on Reddit, Discord and other online platforms have squeezed professional investors and forced some to give up their short trades to cut their losses.
American Airlines, Southwest Airlines and JetBlue Airways reported steep annual losses on Thursday, joining industry peers in closing the books on a merciless year for aviation.
American lost nearly $8.9 billion in 2020, which its chief executive, Doug Parker, described as “the most challenging year in our company’s history.” JetBlue shed almost $1.4 billion and Southwest nearly $3.1 billion, its first annual loss since 1972.
“The Covid-19 pandemic challenged our industry in ways we have never seen before,” Robin Hayes, JetBlue’s chief executive, said in a statement.
The airline industry’s hopes now rest on the distribution of the coronavirus vaccine, but none of the airlines expect a rebound to materialize soon. In fact, Southwest expects to incur higher daily losses in January and February than it did in the final three months of 2020 because of a seasonal decline in travel and the rising cost of fuel.
Southwest said it also expected revenues to be down between 65 and 70 percent in January and February compared to a year earlier. American said it expected revenues to be down 60 to 65 percent in the first three months of 2021 compared to the same period in 2019. JetBlue forecast a similar decline.
Operating revenues for 2020 were down about 63 percent for Southwest and 65 percent for both American and JetBlue compared to 2019. Southwest said it ended the year with about $13.3 billion in easily accessible cash and short-term investments, while American had nearly $14.3 billion and JetBlue about $3.1 billion.
Southwest also said that it expects to start flying Boeing’s 737 Max on March 11, just over two years after the plane was grounded worldwide following two fatal crashes. The Federal Aviation Administration lifted its ban on the jet in November and has since been followed by regulators in Brazil, Canada and Europe.
The trio of financial results on Thursday came a day after Boeing reported a $11.9 billion loss in 2020, its worst year ever. Earlier this month, United Airlines reported a $7 billion annual loss and Delta Air Lines a loss of over $12 billion. At the time, Delta’s chief executive called 2020 the “toughest year” in the carrier’s history, and United’s chief executive said the pandemic had “changed United Airlines forever.”
Peacock, Comcast’s ad-supported streaming service, grabbed over 33 million customers as of the end of last year, a 50 percent jump from September, the company reported in its fourth-quarter results Thursday.
The company overall saw a 2.4 percent drop in sales to $27.7 billion and a 29 percent plummet in adjusted profit to $2.6 billion as the pandemic continued to cut into its theatrical and theme parks businesses. Still, Comcast’s performance beat investor’s expectations. Brian Roberts, the chief executive, said he is “optimistic” the company will come back toward growth as vaccines are distributed throughout the world.
Comcast also announced it would raise its dividend payments to shareholders by 8 cents on an annualized basis to $1 per share and plans to repurchase shares later in the year. The stock rose more than 4 percent in premarket trading.
Comcast has recast itself as more of an internet and technology provider than a television service, and its focus on Peacock is part of that effort. The company’s quarterly performance has become a regular reminder of that ongoing transformation. Comcast’s traditional pay-TV business lost 248,000 customers in the period, but it added 538,000 broadband subscribers for a total of 30.6 million, a high. Its cable video customers now number only 19.8 million.
The company’s NBCUniversal division, which continues to undergo a massive reorganization, last week announced a deal with WWE to make Peacock its exclusive streaming provider, in effect buying out the WWE Network’s digital TV service. Peacock recently got the rights to “The Office,” a popular show with streaming audiences, and NBCUniversal has bolstered Peacock’s sports lineup, adding the majority of its Premier League games to the platform. Comcast also plans to shut down its NBC Sports Cable network by the end of this year and shunt its programming over to Peacock and the USA Network.
Peacock generated more than $100 million in revenue last year, but it’s still a money-loser, eating into pretax profit by $700 million. The company expects those losses to continue this year. Longer term, Peacock is meant to replace the lost advertising dollars from a shrinking pay-TV universe. That means it will need to be far larger and be available on digital players as well as other broadband systems such as Cox and Charter. Adding more sports and exclusive content would help add leverage to those negotiations.
Comcast’s NBC broadcast group saw a 12 percent drop in sales to $2.7 billion on weaker advertising, in part because of the loss of sports programming, while its studios division fell 8.3 percent to $1.4 billion. Advertising across its broadcast and cable networks fell 7.8 percent to $2.5 billion. Theme parks dropped 63 percent to $579 million.
The company still expects the Tokyo Olympics to take place this summer, a cash cow for its advertising business.
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