The economy grew by 4% in the fourth quarter of 2020 as indicated by the first reading of GDP in 2021. This comes after growth of 33.4% in the third quarter. This fourth quarter number means annual GDP was only down 3.5% in 2020. The fourth quarter increase was led by growth in exports, nonresidential fixed investments, personal consumption expenditure, residential fixed investments, and private inventory investments. State and local government and federal government spending were a drag on the economy in the quarter. However, economists continue to be optimistic for 2021. FactSet consensus estimates have growth for the year at 4.2%. One of the larger investment firms projects growth as high as 6.4%.

Personal income increased by 0.6% in December. The expectation was for the number to stay flat, which is better than the previous month’s decrease of 1.3%. Governmental social benefits, compensation, and personal dividend income were the primary drivers for the growth.

Personal consumption expenditure (PCE) decreased by 0.2%. This decrease is better than the expected decline of 0.4%. In November, PCE was down by 0.7%. There was a decrease in spending for both goods and services in December. For goods, both durable and nondurable goods contributed to the decrease. These reductions were partially offset by an increase in spending on motor vehicles and parts. In services, spending on food services continued to be a drag. Additionally, there was a contraction in healthcare spending. These decreases were partially offset by an increase in spending on utilities.

The Markit PMI and ISM Manufacturing numbers for January have been released. The numbers for both were strong despite the ISM number being a little lighter than expected. The Markit PMI Manufacturing reading of 59.2 was better than the expected 56.6. The ISM Manufacturing number of 58.7 was a little lighter than the expected 60 at 58.7, but still strong. Both indices are diffusion indices, meaning numbers over 50 are positive.

Close to 50% of companies have announced earnings and sales results for the fourth quarter of 2020. Results continue to come in better than expected. Earnings growth for the quarter is at 0.9% according to Refinitiv. The expectation had been for a fourth quarter earnings decline. Sales have grown by 0.7%. These positive results led to earnings and sales surprises of 18.5% and 3.1% respectively. The current expectation is for double digit earnings growth in each quarter this year.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet, Refinitiv.
The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized.

The information within this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Statements in this report are based on the views of BTC Capital Management and on information available at the time this report was prepared. Rates are subject to change based on market and/or other conditions without notice. This commentary contains no investment recommendations and you should not interpret the statement in this report as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of principal. Investments are not FDIC insured and may lose value.