February 2021 National Economic Outlook

Slower But Still-Solid Growth in Late 2020 and Early 2021

Executive Summary

Real GDP increased 4.1% at an annualized rate in the fourth quarter of 2020 (the BEA released a revision to the data after PNC prepared the February forecast). While this was much smaller than the 33% increase in the third quarter, it was still solid. Even so, the U.S. economy at the end of 2020 was 2.4% smaller than it was in the fourth quarter of 2019, the last full quarter before the pandemic.

There is still a lot of lost ground to make up, even after very good growth in the second half of 2020. Consumer spending, business investment, housing and inventories all made big contributions to fourth quarter growth. Trade was a drag, however, as imports rose much more than exports.

There was net U.S. job growth of 49,000 in January, according to a survey of employers from the Bureau of Labor Statistics, almost matching the consensus expectation of 50,000. 

  • The private sector added just 6,000 jobs in January, while government employment rose by 43,000. Job losses in December were revised to 227,000, from initially reported losses of 140,000. 
  • November job growth was 264,000, revised lower from 336,000. After average monthly job growth of 2.7 million between May and August as businesses reopened, job growth over the last three months has slowed to a monthly average of only 29,000 as the pandemic reintensified. 

Employment in January was still about 10 million below its February peak; at this pace it would take decades for employment to return to its pre-recession level.

  • The unemployment rate fell to 6.3% in January, from 6.7% in both November and December and a peak of 14.8% in April. Even with the January decline, the unemployment rate remains well above its pre-pandemic level of 3.5% in early 2020.
  • The unemployment rate fell in January due to both job gains, according to a survey of households (different from the survey of employers), and people dropping out of the labor force.

Retail sales jumped 5.3% in January from December, following a 1.0% decline the previous month (revised from a 0.7% decline). This was the first increase in retail sales since September, and the largest increase in sales since June.

Retail sales excluding autos were up 5.9% over the month, and sales excluding autos and gasoline were up 6.1%. Control sales—retail sales excluding food service, autos, gasoline, and building materials, and which go into consumer spending in GDP—were up 6.1% in January.

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