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New data shows 2020 was worst year for economy since WWII era

Annual GDP of -3.5% may not sound that awful, but 2020 was the worst for economic growth since immediate aftermath of World War II.
Image: FILE PHOTO: Shoppers carry bags of purchased merchandise at the King of Prussia Mall, United States' largest retail shopping space, in King of Prussia
Shoppers at the King of Prussia Mall in Pennsylvania, the largest retail shopping space in the U.S., on Dec. 8, 2018.Mark Makela / Reuters file

There are a great many reasons 2020 was a disastrous year, but among them was the economic recession. This morning, as CNBC reported, we got a better sense of just how rough it was.

Gross domestic product, or the sum of all goods and services produced, increased at a 4% pace in the fourth quarter, slightly below the 4.3% expectation from economists surveyed by Dow Jones. Thursday's report was the Commerce Department's initial estimate of growth for the quarter.... In the Commerce report, the annualized pace closed out a 2020 that saw GDP overall decline 3.5% for the full year.

Annual GDP of -3.5% may not sound that awful -- in fact, it's a bit better than many expected last spring -- but 2020 was the worst for economic growth since immediate aftermath of World War II.

As for the fourth quarter in particular -- October through December of last year -- 4% annualized growth was a little short of expectations, and it was much smaller than the 33.4% growth from the previous quarter, when businesses started recovering from the collapse in the spring.

A New York Times report added, "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."

The relief package approved a month ago is expected to make a positive difference, but it was designed as a temporary measure, and the economic hole the United States is in remains deep. It's why Democrats are now moving forward with a new, more ambitious economic aid plan now, with the intention of passing a bill over the next month or so.

Watch this space.

Postscript: It's worth clarifying that today's 4% quarterly figure refers to growth at an annualized rate, which is the standard way of reporting the data. In other words, if we saw 12 months of economic activity like what we saw in the fourth quarter, the economy would grow by roughly 4%.

That said, no one seriously believes we will see 12 months like the last three, which is why you'll likely see some focus today on a different figure: 1% growth, which reflects the change between the third and fourth quarters.