February 25, 2021

The revised estimate of fourth quarter GDP growth came in at 4.1% compared to a preliminary estimate of 4.0%.  That compares to a 31.4% decline in the second quarter followed by 33.4% growth in the quarter .  Both swings in those two earlier quarters were record-breaking quarterly changes.  In the fourth quarter GDP growth of 4.1% was bolstered as the economy continued to rebound from the slump in the second quarter of last year, but growth was held in check by new restrictions and closures in some parts of the country.  As a result, for 2020 as a whole GDP declined 2.4%.

The $900 billion of fiscal stimulus bill approved in late December  bolster growth in January and probably February as well.  And then the $1.9 trillion stimulus plan (exact amount to be determined) should bolster growth in the second half of the year.  Given all of that, we have boosted our projected GDP growth rate for the first quarter to 8.2% and to 7.5% GDP growth for 2021 followed by GDP growth of 4.8% in 2022..

Final sales, which is GDP excluding the change in business inventories rose 3.0% in the fourth quarter compared to a 4.1% GDP growth rate.  Thus, inventory accumulation added 1.1% to GDP growth in that quarter.

Final sales to domestic purchasers excludes both the change in inventories and trade rose 4.4% in the fourth quarter.  Given that final sales rose 3.0%, then trade subtracted 1.4% from GDP growth in the fourth quarter.as exports grew  more quickly than imports (which means that the pace of economic activity in the U.S. exceed growth outside the U.S.).

Consumption spending rose a modest 2.4% in the fourth quarter as the more rapid spread of the virus caused more restrictions and non-essential store closing in some states.  For example, spending at restaurants and bars declined 13.5% in the fourth quarter.


Nonresidential investment rose 14.0% in the fourth quarter after having climbed by 22.9% in the third quarter. The increase was largely attributable to equipment spending which surged by 25.7%.  Spending on structures rose 1.1% in the fourth quarter.  Spending on intellectual property rose 8.4%.  Firms need to invest in technology that will allow them either to survive these difficult times,, or help them expand their production and delivery functions to meet surging demand.

Residential investment continued to climb at a 35.8% pace in the fourth quarter after having jumped 63.0% in the third quarter.  Housing is hot.  Certainly a record low level of 2.7% mortgage rates are a large reason why.  Also renters in expensive metropolitan areas like New York, Chicago, and San Francisco are abandoning the city for more affordable housing in the suburbs.  Sales in resort communities like Lake Tahoe, the Jersey shore, and the mid-Atlantic beaches are booming.

The foreign sector as measured by the deficit for real net exports In the third  quarter widened by $104 billion to $1123.0 billion.   Exports climbed by 21.8% in the fourth quarter while imports rose 29.6%.  These results suggest that the rebound in the U.S. economy is outpacing the pickup in growth overseas.

Federal government spending fell 0.9% in the fourth quarter after having declined 6.2% in the third quarter and having jumped 16.4% in the second quarter.  Defense spending climbed 4.7%, but non-defense spending declined by 8.9% in the fourth quarter after having fallen 18.3% in the third quarter and having surged by 37.6% in the second quarter as the government sent out $1,200 tax refund checks to every taxpayer..

Following the record-breaking 31.4% decline in second quarter GDP and a rebound of 33.4%  in the third quarter, GDP climbed by 4.1% in Q4.  We expect  GDP to rise by 8.2% in the first quarter and by 7.5% in 2021 as the vaccines bolster growth in the second half of the year at the same time as still more fiscal stimulus further lifts growth.

Stephen Slifer


Charleston, SC