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February 25, 2021 Blog 2 min read
Softening consumer demand was the story late last year, standing in sharp contrast to the explosion in spending that was unleased during the summer. Even so, the economy sidestepped a feared double-dip in the fourth quarter.

2.25.21 GDP chartIf you were looking to visualize what economic volatility looks like, it would be hard to envision a better model than 2020. From the record-setting, precipitous decline virtually overnight in March to the unprecedented rebound in Q3, volatility last year was extreme. Comparatively, the sharp deceleration in growth that occurred in the final quarter of the year was a direct result of the second wave of COVID-19 washing across the country.

That marked slowdown in activity dimmed expectations for Q4 growth, as consumers reassumed a cautious stance, cutting spending on a range of goods and services. The result was growth of 4.1%, according to the second estimate released today.

Consumer outlays on goods dipped by 0.9%, although spending on healthcare specifically helped to lift the broad services sector. Beneath the headline advance, however, were varying results across different service sectors, many of which experienced declining sales. Restaurants, hospitality, and a range of leisure services remain under pressure as restrictions, lockdowns, and cautious consumer behavior weighed heavily on activity.

The 4.1% gain doesn’t tell the whole story. On the surface, that would represent a solid pace of growth amid an expansion, particularly given structural estimates of potential growth in the 1.5 – 2.0% range. However, coming off a virtual shutdown of vast parts of the economy earlier in the year, stronger growth was needed and expected to begin the healing process. Even with the solid rebound in the latter half of the year, there’s still a large hole to be filled.

Conversely, there are positives as well. The fourth-quarter advance masks the underlying weakness that was present in consumer spending and labor market conditions, and perhaps how close the economy came to slipping back into recession late last year.

It now appears that the economy successfully dodged the double-dip bullet, as a broad swath of recent data points to a reacceleration in growth, fueled by additional fiscal stimulus and emboldened by the sharp decline in COVID-19 cases. Expectations for the continued distribution of vaccine and warmer temperatures coaxing greater mobility in the months ahead provides additional reason for optimism in the near term.

The bottom line? It increasingly appears that the economy avoided a hard landing and should be well positioned to accelerate from here. Disruptions to vaccine distribution or the emergence of a new strain that’s vaccine-resistant would present a risk to the near-term outlook, but absent that, the economic picture for the coming year looks relatively favorable.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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