US GDP Grew At 6.9% Rate In Q4 2021; Outpaces Estimates

The U.S. economic growth outpaced the expectations, ending 2021 at a higher note on the back of an increase in inventories and consumer spending.

Gross domestic product, the sum of all goods and services produced during the Oct-Dec quarter, grew at an annual rate of 6.9%, “advance” estimate released by the Bureau of Economic Analysis.

Economists surveyed by Dow Jones had been expecting an annualized growth rate of 5.5%, reported CNBC.

The increase outstripped the 2.3% growth noted in the third quarter despite the reporting last three months being wounded with the rising cases of Omicron variant of Coronavirus, sky-rocketing inflation and affected business productivity.

The gains in the GDP was a reflection of the increase in private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment “that were partly offset by decreases in both- federal and state and local government spending. Imports, which are a subtraction in the calculation of GDP, grew.”

The country’s gross domestic product expanded 5.7 percent in 2021, emerging from the pandemic-scarred 2020, which saw a contraction of 34 percent in GDP.

Not only this, 2021 marked the strongest calendar-year growth since a 7.2 percent surge in 1984 after a previous recession.

Also Read: PCE Price Index: Consumer Prices Jumped 5.7% In Last 12 Months, Highest In 39 Years

“The strength of the economy last year stood in stark contrast to the collapse in activity in early 2020, but also speaks to the success of both the public and private sector in quickly adapting to the unprecedented challenges created by the pandemic,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “That being said, potential headwinds still exist, as the global risks associated with the COVID-19 pandemic persist.”

The economic resurgence in 2021 came mainly due to a 7.9 percent increase in consumer spending and a 9.5 percent rise in private investment. For the last three months of 2021, consumer spending increased at an annualized pace of 3.3 percent, while private investment surged 32 percent.

Government spending dipped to 0.5 percent in 2021, whereas it was 2.5 percent in the preceding year and 2.2 percent in 2019 when there were no major signs of Covid illness. In the last quarter of 2021, it came at a negative of 2.9 percent.

Inflationary pressure and COVID-19 caseloads will continue to depress the economic growth in 2022. Many economists have been downgrading their outlook for the current January-March quarter, owing to the fast-spreading Omicron variant that has dented the economic activities. For the full year 2022, the International Monetary Fund (IMF) has predicted the GDP growth to lower at 4 percent.

Many U.S. businesses, specifically restaurants, bars, hotels and theatres, were hard hit by the Omicron spread as people were supposed to avoid gathering and socializing.

Consumer spending, the primary driver of the economy, is also expected to further suppress this year owing to the loss of government aid to households, which boosted activity in 2020 and 2021, but has majorly expired.

Also Read: US Consumer Confidence Boosts Despite Rising Omicron Cases

In another news release by the labour department, jobless claims totalled 260,000 for the week ended Jan. 22 came lower than the expectations of 2,65,000 and down 30,000 from the previous week’s revised level.

Labour conditions in the United States remain rigid, and production restrictions and hiccups in the global supply chain are proving to be more difficult to resolve than policymakers supposed a year ago.

Further, orders for long-lasting goods reduced 0.9% for December to $267.6 billion, worse than the expected drop of 0.6%. Orders for durables tumbled to the lowest point since April 2020. This decrease came after two consecutive monthly increases. In November, it stood in the positive terrain at 3.2 percent.

The GDP data, overall, reflected a solid recovery of the economy following a significant slowdown over the summer. Supply chain concerns linked to the pandemic, along with robust demand fueled by extraordinary stimulus from Congress and the Federal Reserve, resulted in economic imbalances across the board.