Last year, the U.S. economy shrank by 3.5 percent as Americans had their lives turned upside down by the coronavirus pandemic. This made 2020 the worst year for growth since 1946 when the economy contracted by more than 11 percent in the immediate aftermath of World War II. It’s also the first time since 2009 that GDP has contracted over the course of an entire year, although the economy did begin to recover in the latter half of 2020.
“There has been a broad recovery, but economically speaking, we’re not out of the woods yet,” said financial analyst Ben Herzon. Although sales in service sectors like leisure and hospitality have dropped significantly, purchases of home goods like computers, desks, and kitchen equipment are skyrocketing as people stay at home. Flower and garden businesses also saw sales increase from increasingly homebound customers. “So many people were home, and we were deemed essential and one of the few places people could go to shop,” said Tracey Auger, office manager of a New Hampshire-based home and garden company. “They needed somewhere to go; a project to do.”
Yelp also recently announced that more businesses reopened in December than in any month since June while wedding planners are also seeing a slight increase in business. Still, many Americans are struggling as personal income continued to fall between October and December and 15 million people remained on unemployment. Experts say that the U.S. will need to contain the pandemic before the economy can make a full recovery. “That is really the main thing about the economy, is getting the pandemic under control, getting everyone vaccinated, getting people wearing masks and all that,” said Federal Reserve Chair Jerome Powell. “That’s the single most important economic growth policy that we can have.”
Discussion/Questions:
- Why did the U.S. economy significantly contract in 2020?
- What is the difference between real and nominal GDP?
- Do you think consumers will continue to buy more goods than services for the foreseeable future? Why or why not?
Source: Rachel Siegel and Andrew Van Dam, “2020 Was the Worst Year for Economic Growth Since the Second World War,” The Washington Post, January 28, 2021. Photo by Ellie Burgin from Pexels.