U.S. Economy Slows Sharply As Pandemic Resurges

The Commerce Department says the U.S. economy grew just 1% in the last three months of the year, as a rise in coronavirus infections weighed on in-person businesses like restaurants.

Transcript

SARAH MCCAMMON, HOST:

New numbers out this morning show that the nation's economy slowed considerably in recent months during the winter wave of coronavirus infections. That put the brakes on the rapid rebound we saw in the summer and early fall. NPR's Scott Horsley has been digging into this report from the Commerce Department, and he's with us now. Hey, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Sarah.

MCCAMMON: So what does it tell us about the last three months of last year?

HORSLEY: It shows the economy grew just under 1% in October, November and December. That's a significant downshift from the summer and early fall, when the economy expanded nearly 7.5% as businesses were reopening after those pandemic lockdowns in the spring. All told, we ended 2020 with an economy about 2.5% smaller than it was when the year began. Now, some industries are doing OK despite the pandemic. You know, construction is booming. Manufacturing is pretty strong. It's in-person businesses like restaurants, bars, hotels that are really struggling. And Federal Reserve Chairman Jerome Powell says that's a big part of the economy. Until it's fixed, we're not going to be out of the woods.

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JEROME POWELL: We're a long way from a full recovery. Something like 9 million people remain unemployed as a consequence of the pandemic. That's as many people as lost their jobs at the peak of the global financial crisis and the Great Recession.

HORSLEY: Now, that is an improvement from the worst point last year, when we were down some 22 million jobs. But it's still painful. And just this morning, we learned another close to 1.3 million people filed new claims for unemployment last week.

MCCAMMON: And what's it going to take to make that up?

HORSLEY: Getting control of this virus? You know, the Fed is doing its part. They're keeping interest rates near zero. Late last month, Congress came through with another round of relief payments. President Biden's pushing Congress to do more of that. But ultimately, Fed Chairman Powell says the economic recovery is going to depend on solving the public health problem.

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POWELL: There's nothing more important to the economy now than people getting vaccinated. If you think about the places where the economy is weak, I mentioned bars and restaurants. That's 400,000 jobs we lost last month. And that's all because of the spread of the pandemic.

HORSLEY: Powell, who is 67 years old, got his first shot of vaccine not long ago. He says he expects to get a second dose pretty soon. But we know it's going to take months until everybody who wants a vaccine in the country can have one. And in the meantime, public health experts are saying wearing face masks, following social distancing guidelines can also help.

MCCAMMON: So looking ahead, Scott, what is the outlook for the economy this coming year?

HORSLEY: Well, right now, we are still seeing thousands of COVID-19 deaths every day. And that is going to continue to weigh on economic activity for at least a few more months. If we are successful, though, in stopping the pandemic, we could see the economy grow pretty rapidly in the second half of the year. Ben Herzon is a senior economist at IHS Market. He says there could be a lot of pent-up demand for the kind of in-person services that we've been missing for these last 10 months or so, although he cautions it's not entirely clear that all the money that wasn't spent last year will suddenly come pouring into the economy right away - some will, some won't.

BEN HERZON: One example is haircuts. You probably won't get more haircuts than you otherwise would have. But maybe people are really tired of staying at home and they will go out to eat more than they would otherwise.

HORSLEY: The combination of vaccines and some additional government spending does have folks raising their forecast for the coming year. The International Monetary Fund, for example, now predicts the economy will grow more than 5% in 2021. That would bring us all the way out of the hole we were in last year and put the economy back on pre-pandemic footing sometime in the second half of the year.

MCCAMMON: I don't know about you, Scott, but I need at least one haircut. Thanks for being with us.

HORSLEY: (Laughter) Good to be with you.

MCCAMMON: Scott Horsley, NPR's chief economics correspondent. Transcript provided by NPR, Copyright NPR.