By Harriet Torry and Eric Morath
The U.S. economy is expected to have recovered most but not all
of its losses last year from the pandemic's initial shock, with
growth that resumed in the second half of 2020 projected to pick up
steam this year.
U.S. gross domestic product figures set to be released on
Thursday are expected to show it grew at a 4.3% annual rate in the
fourth quarter, according to economists surveyed by The Wall Street
Journal. Such an increase would add to the record gain in the third
quarter and bring output closer to where it stood before the
pandemic hit hard last March.
But economists say growth in the third and fourth quarters isn't
likely to fully offset the sharp downturn from the first half of
the year, leaving the U.S. with a projected 2.4% annual
contraction, its first since 2009 when the economy shrank by 2.5%
in the wake of the financial crisis.
The Commerce Department GDP reading--the value of all goods and
services produced across the economy--for the fourth quarter and
2020 will be released at 8:30 a.m. ET.
The coronavirus and related business disruptions put in place
early in the pandemic upended the U.S. economy early last year,
triggering business and school closures, a steep drop in demand for
goods and services, and record job losses. The economy rebounded in
the second half of the year as it reopened, with sharp gains in
employment and consumer spending over the summer that were helped
by trillions of dollars in government aid.
While the recovery has slowed this winter, economists expect it
will pick up again later in 2021, once the pandemic is under
control, though the coronavirus remains a threat to the global
economy.
"Coming out of the disaster of the pandemic, we're going to see
outsized growth from the second quarter onwards and a sharp decline
in joblessness," said Joseph Brusuelas, chief economist at RSM US
LLP.
The International Monetary Fund expects the U.S. economy to grow
5.1% this year, while economists surveyed by the Journal projected
4.3% growth, measured from the fourth quarter of the prior
year.
Economists expect hiring to start slowly this year, after
employers shed jobs in December. But they also expect momentum to
grow later, as the Covid-19 vaccine becomes widely available,
hospital burdens ease and consumers resume activities such as
dining out, sporting events and vacations. Offices could reopen to
more workers, which would lead to lunches out and drinks after
work.
Other factors in play include government aid and accumulated
savings from those who continued to work but reduced spending
during the pandemic.
Consumer spending is the engine of U.S. economic output, and a
pickup in spending would in turn lead to more hiring, particularly
in some of the hardest-hit sectors such as restaurants, hotels,
stores and personal services.
"We expect there to be plenty of growth over the late spring and
summer as the service sector of the economy ramps back up," said
Daniil Manaenkov, an economic forecaster at the University of
Michigan.
Several states, including California and New York, have recently
rolled back restrictions, and many Southern states essentially have
no restrictions, Mr. Manaenkov said. That allows for activity to
grow quickly once consumers feel good about heading out, he
said.
Employers are poised to add more than five million jobs this
year, according to economists surveyed by the Journal. That would
make 2021 the best year for employment gains in records dating to
1939, topping 4.3 million jobs created in 1946 at the start of the
post-World War II expansion.
Still, even record-setting hiring this year would leave the U.S.
millions of jobs short of pre-pandemic employment heading into
2022.
The impact of the pandemic has been unevenly felt across the
country, with some regions such as the South holding up better than
others.
And some industries have thrived, such as technology firms,
logistics companies and online retailers, while others such as
in-person services businesses struggled.
The GDP report is expected to show that consumer spending and
business investment likely eased in the fourth quarter after
recording outsize strength in the third quarter. Trade is expected
to be a drag on growth as the U.S. imported more than it
exported.
The housing market is expected to continue to perform strongly,
as families working from home have bought bigger residences or
spent money on improving their properties. That has also given a
boost to spending on durable goods--long-lasting items like new
washing machines and furniture.
Per-share earnings for S&P 500 companies fell 4.3% in the
fourth quarter, compared with fourth-quarter 2019, according to
data from Refinitiv, reflecting results for 114 companies and
analysts' expectations for the remainder of the index. Sales fell
0.4% year over year, but rose 2.7% excluding the volatile energy
sector.
Still, those declines are significant improvements from earlier
periods during the year. Per-share earnings fell 6.5% year over
year in the third quarter, and 30.6% in the second quarter,
Refinitiv said. Energy, industrial and consumer-discretionary
companies saw the biggest earnings declines in the fourth quarter,
while financial, tech and materials companies saw year-over-year
gains of 9% or higher.
Michael Stephans, co-owner of the Velvet Shoestring, a high-end
furniture resale and décor shop in Williamsburg, Va., said business
has been good and that sales held steady during the holidays,
months that are typically slower because "a sectional sofa is not a
Christmas item."
"I think a lot more people have conserved money on vacations and
things like that. So they're spending them in the house," he
said.
For Hank Saipe, who owns five self-storage facilities in Denver,
the impact of Covid-19 has also been relatively minor. Occupancy
rates are up from last year as more people are moving house and
setting up home offices during the pandemic, which means he has
been able to raise rental rates, too.
Regarding the pandemic more broadly, the 65-year old said he is
"trying to be as strict as possible," wearing masks and limiting
travel until he gets a vaccine. It has been a year since he last
visited a theater or went to the movies, and he does curbside
pickup from restaurants rather than dining inside. "I'm looking
forward to my daughter's wedding in August. Hopefully, we can have
it," Mr. Saipe said.
Hannah Lang and Theo Francis contributed to this article.
Write to Harriet Torry at harriet.torry@wsj.com and Eric Morath
at eric.morath@wsj.com
(END) Dow Jones Newswires
January 28, 2021 05:44 ET (10:44 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.