GDP fell by 3.5% in the year 2020, the worst annual decline since 1946. Trade deficit in Q4 hit new all-time worst.
By Wolf Richter for WOLF STREET.
The size of the US economy, as measured by GDP in “current dollars” (not adjusted for inflation), fell to $20.9 trillion in the year 2020, according to the Bureau of Economic Analysis this morning.
In the discussion below, you will see inflation-adjusted figures, with adjustments being made based on “2012 dollars.” In these 2012 dollars, GDP fell by 3.5% in the year 2020, the worst annual decline since 1946 (when it plunged by 11.6%).
In the fourth quarter, GDP grew by 1.0% from the third quarter, adjusted for inflation (but not “annualized”), which left Q4 GDP still down 2.5% from a year ago.
The plunge in Q2 and the jump in Q3 were the sharpest moves ever in the quarterly GDP data, which began in 1947. Before then, there were only annual data. Q4 growth, at 1% (green column), is back in the normal quarterly growth range over the past two decades:
In the headlines this morning, you saw “4%” GDP growth for Q4, which was an “annualized” figure, meaning Q4 growth (1.0%) multiplied by four to project what the growth would be if it continues for an entire year at the same rate, which is kind of silly, but that’s what “annualized” growth rates do. And they sure make things look bigger.
Adjusted for inflation via these infamous “2012 dollars,” GDP in Q4 amounted to a “seasonally adjusted” “annual rate” of $18.8 trillion, same where it had been in Q4 2018:
Consumer spending (69.5% of GDP) edged up just 0.6% in Q4 from Q3 to an annual rate of $13.0 trillion in 2012 dollars. And it was still down 2.6% from Q4 last year:
- Spending on goods eased a smidgen from Q3, to $5.1 trillion (annual rate).
- Spending on services rose 1.0% from Q3 to $8.0 trillion (annual rate).
This produced a very unspectacular uptick after the spectacular plunge-and-bounce in Q2 and Q3:
Gross private domestic investment (18.8% of GDP) jumped 5.8% in Q4 from Q3 to a new record annual rate of $3.5 trillion. This includes investment in residential and non-residential structures, equipment, and intellectual property products such as software, but it does not include investment in financial products such as stocks and bonds:
Private inventories grew by 44.6 billion (annual rate) in Q4, after having ticked down by $3.7 billion in Q3, and having plunged by $287 billion in Q2 and by $81 billion in Q1. In otder words, inventories got partially replenished. Growth in inventories adds to GDP.
Surging Imports, weak Exports produced record trade deficit and dragged down GDP (all in annual rates and 2012 dollars).
Imports of goods and services rose by $213 billion in Q4 from Q3, to $3.4 trillion, fired up by the stimulus economy when consumers can’t spend their money on fancy vacations. Instead, they’re spending their money on imported goods.
Exports of goods and services rose only by $110 billion, not nearly enough to compensate for the surge in imports, to $2.3 trillion.
And the trade deficit (exports minus imports) – or “real net exports” – of goods and services in Q4 worsened to a new worst of -$1.12 trillion. Net exports are added to GDP. Since the amount is negative, it reduces GDP by $1.12 trillion. This is 30% worse than the hit in Q4 2019.
I took the chart back to 1970, even though the details get lost, to show just how far this situation has deteriorated. Anything below the blue line subtracts from GDP. The US stimulus economy – the Weirdest Economy Ever – stimulated the economies in other countries, such as China, Germany, Japan, and Mexico:
Government consumption and investment (17.7% of GDP) dipped 0.3% from Q3 to $3.3 trillion (annual rate), down 0.6% from a year earlier. This includes all governments: federal, state, and local.
But wait… this does not include stimulus and unemployment payments, Social Security payments, government salaries, and other direct payments to consumers, which are counted in GDP when consumers spend this money as part of consumer spending – see the consumer spending chart above.
Government consumption and investment includes the goods and services that the government consumes, from fuel for government vehicles and rent for offices to consulting services. And it includes government investments, such as in infrastructure.
State and local governments have come under heavy budgetary pressures, and in Q4 their consumption and investment declined by $8.5 billion to $1.98 trillion (annual rate, 2012 dollars), after having already declined by $20 billion in the prior quarter.
The federal government’s consumption and investment ticked down by $1.8 billion in Q4, to $1.33 trillion (annual rate, 2012 dollars) with defense up by $10 billion and non-defense down by $11.4 billion:
And so this puts the economy of 2020 behind us…
Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey’s history, but prices have also risen due to the imbalance of supply and demand.” Read… Inflation Is Spreading Broadly into the Economy. Amid Surging Costs, Companies Raise Prices, and Customers Pay them, Despite Weak Economy, 10 Million Missing Jobs
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