US economy contracts at sharpest pace since World War II

03 Feb '21

2 min read

Pic: Shutterstock

The US economy contracted at its sharpest pace since World War II last year as COVID-19 ravaged services businesses, throwing millions out of job and into poverty. The recovery lost steam as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government, the commerce department said.

The economy contracted by 3.5 per cent in 2020, the worst performance since 1946. That followed 2.2 per cent growth in 2019 and was the first annual decline in GDP since the 2007-09 Great Recession. The economy plunged into recession last February.

In the fourth quarter, GDP increased at a 4 per cent annualised rate as the virus and lack of another spending package curtailed consumer spending, and partially overshadowed robust manufacturing and the housing market.

The department released its snapshot of fourth-quarter gross domestic product (GDP) recently.

The Federal Reserve last week pledged to continue injecting money into the economy through bond purchases, noting that "the pace of the recovery in economic activity and employment has moderated in recent months." President Joe Biden has unveiled a recovery plan worth $1.9 trillion.

The services sector has borne the brunt of the coronavirus recession, disproportionately impacting lower-wage earners, who tend to be women and minorities. That has led to a so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out.

Rising poverty was underscored by persistent labour market weakness. In a recent report, the labour department said 847,000 more people filed new claims for state unemployment benefits. Only 12.4 million of the 22.2 million jobs lost in March and April have been recovered.

Fibre2Fashion News Desk (DS)

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