- U.S. GDP growth grew at an annualized rate of 4.0% in the fourth quarter of 2020
- Consumer spending fell 0.2% in December from the prior month
- The Federal Reserve intends to maintain monthly asset purchases of $120 billion
Top Three Market Headlines
U.S. GDP Expands in Q4: The Commerce Department reported last week that U.S. gross domestic product (GDP), a measure of all goods and services produced, expanded at an annualized pace of 4.0% in the fourth quarter of 2020. Following a 33.1% annualized third-quarter increase, the Q4 growth rate came in slightly below expectations. Rebounds in exports, nonresidential fixed investment, and consumer spending drove Q4 growth; however, lower government spending at the federal, state, and local levels detracted from output. For the full year, GDP declined 3.5%, weighed down by the dramatic 31.4% Q2 decline in the wake of Covid-19-induced business shutdowns. 2020’s downturn marked the first yearly decrease since 2009 and the sharpest decline since 1946.
Consumer Spending Ticks Lower in December: The Bureau of Economic Analysis reported last week that U.S. consumer spending fell 0.2% in December from the prior month. This was the second straight monthly decline, and was led by decreases in purchases of food services, reflecting the impact of renewed COVID-19-induced economic restrictions imposed by certain cities and states towards the end of 2020. A weakening consumer environment was also depicted in the January reading for the Consumer Confidence index, released earlier in the week; while the index rose to 89.3 from 87.1 in December, it remained meaningfully below its September level of 101.8.
Federal Reserve Keeps Policy Unchanged: The Federal Reserve said last week that it will keep the federal funds rate near zero while maintaining its monthly bond purchases of $120 billion per month, moves that were consistent with market expectations. Fed Chairman Jerome Powell addressed the issue of when the Fed might taper its quantitative easing (i.e., bond buying) program, stating that its bond purchases will continue until the central bank makes substantial progress toward reaching its monetary and inflation goals. In commenting on the economy, the Fed noted that the pace of the recovery in economic activity and employment moderated in recent months.