US GDP growth slows to 4% in Q4 2020 amidst widening trade deficit

US real gross domestic product (GDP) increased at an annual rate of 4.0 per cent in the fourth quarter of 2020, reflecting both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of the Covid-19 pandemic, including new restrictions and closures that took effect in some areas of the United States. In the third quarter, real GDP increased 33.4 per cent

Personal income increased 0.6 percent (monthly rate) while consumer spending decreased 0.2 percent in December as many provisions of the CARES Act continued to wind down before the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act was enacted on December 27, 2020. Additionally, new restrictions and closures took effect in some areas of the United States.

The Commerce Department said on Friday that the trade deficit jumped 17.7 per cent to $678.7 billion in the year 2020, the highest since the 2008 global financial meltdown. Exports of goods and services tumbled 15.7 per cent to their lowest level since 2010. Imports of goods and services dropped 9.5 per cent to a four-year low.

US monthly trade deficit, however, declined in December 2020 to $66.6 billion sequentially from $69.0 billion in November (revised), according to the US Bureau of Economic Analysis and the US Census Bureau. 

The deficit decreased as exports increased more than imports. The previously published November deficit was $68.1 billion. The goods deficit decreased $2.8 billion in December to $84.2 billion. The services surplus decreased $0.4 billion in December to $17.5 billion.

US current account deficit widened by $17.2 billion, or 10.6 per cent, to $178.5 billion in the third quarter of 2020, data released by the US Bureau of Economic Analysis showed. The revised second quarter deficit was $161.4 billion. The third quarter deficit was 3.4 per cent of current dollar gross domestic product, up from 3.3 per cent in the second quarter.

Expenditures by foreign direct investors to acquire, establish, or expand US businesses totalled $194.7 billion in 2019, down 37.7 per cent from $312.5 billion in 2018.

US mercantile trade deficit decreased $2.8 billion in December to $84.2 billion. The services surplus decreased $0.4 billion in December to $17.5 billion.

The slump in exports contributed to the economy shrinking 3.5 per cent last year, the biggest drop in gross domestic product since 1946. Trade flows have been gradually improving with the December trade deficit narrowing 3.5 per cent to $66.6 billion.