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Economy shrank 3.5 percent in 2020

The U.S. economy shrank 3.5 percent in 2020 as the coronavirus pandemic shuttered businesses, schools and events, marking the first annual contraction since the Great Recession, according to data released by the Commerce Department on Thursday.

U.S. gross domestic product (GDP) suffered its largest annual decline since 1946 due to the coronavirus pandemic, according to the Commerce Department release. The outbreak of COVID-19 caused the steepest economic collapse since the Great Depression, wiping out more than 20 million jobs and years of economic growth within two months.

U.S. GDP increased by an annualized rate of 4 percent in the final three months of 2020, according to the data released Thursday, following an annualized gain of 33.4 percent in the third quarter and a 31.4 percent annualized decline in the second quarter. But the economic rebound staged in the second half of 2020 has been dampened by the continued rapid spread of COVID-19 throughout the country.

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The U.S. economy came into 2020 remarkably strong. Unemployment reached a 50-year low of 3.5 percent in the previous year, inflation remained low and the U.S. had just set a record for the longest economic expansion in its modern history. While the U.S. was likely to face some headwinds from slowing economies overseas, the stunning emergence of the coronavirus pandemic shattered the strong labor market and forced thousands of businesses to shutter.

Consumer spending — which makes up nearly two-thirds of the U.S. economy — fell 2.6 percent in 2020, driven mainly by a 3.4 percent decline in spending on services. Spending on goods rose 0.8 percent, however, as purchases shifted from gatherings to products that could be used during lockdowns.

Economists expect the U.S. economy to bounce back quickly in the second half of 2021, assuming enough Americans are vaccinated to prevent large coronavirus outbreaks. Both economists and health experts insist that a full return to normal is not possible until the pandemic is defeated. 

Roughly 9 million jobs lost during the onset of the pandemic have yet to be recovered, and those without work have struggled to get by with swaths of the economy still largely shut down by the virus. The federal government approved more than $4 trillion to fund pandemic response and economic rescue in 2020, though Democratic lawmakers and many economists say more is still needed.

President Biden and congressional Democrats are pushing to pass another $1.9 trillion COVID-19 bill meant to ramp up vaccine distribution and offer more economic relief to those in the greatest need.

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Republican lawmakers have not ruled out passing another relief bill, but most object to the size and scope of Biden's proposal after approving a $900 billion measure in December.

Treasury Secretary Janet YellenJanet Louise YellenBiden eyes bigger US role in global vaccination efforts Democrats see political winner in tax fight WHO chief laments 'shocking imbalance' in vaccines for poor countries MORE and Federal Reserve Chairman Jerome Powell have both warned lawmakers that the risks of holding back on necessary fiscal relief are far greater than adding more to the national debt or risking an increase in inflation.

“I'm much more worried about falling short of a complete recovery and losing peoples' careers and lives and the damage that will do to productive capacity than about the possibility of higher inflation,” Powell said Wednesday.

Updated at 9:30 a.m.