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• Consumer spending, rose a healthy 3.3% in the fourth quarter
• Exports jumped 24.5% in the fourth quarter and imports moved up 17.7%.
The US gross domestic product (GDP) grew at an annualized rate of 6.9% in the fourth quarter of 2021, before the late surge in COVID-19 cases due to Omicron.
The Wall Street Journal had reported that the GDP would rise by an estimated 5.5% in the fourth quarter. GDP grew a slower 2.3% in the third quarter. The figures are adjusted for inflation.
The latest figure shows that the fourth quarter recorded the strongest economic growth since the third quarter of 2020 when the initial rebound from the lockdown enabled the strongest GDP reading in US history.
Read more: IMF cuts 2022 global growth forecast as slowdowns in US, China to affect economies worldwide
The massive government stimulus spending has helped the GDP increase to 5.7% for the full year making it the largest gain since 1984.
Stating statistics
Consumer spending, rose a healthy 3.3% in the fourth quarter. Outlays had risen a smaller 2% in the third quarter. Government outlays fell 2.9% after most of the fiscal stimulus approved by Congress earlier in the year dried up.
Exports jumped 24.5% in the fourth quarter and imports moved up 17.7%. Despite this, the U.S. is expected to post a record trade deficit in 2021 due to the huge increase in demand for foreign goods.
The value of inventories soared by $240 billion — one of the biggest increases in decades — as companies ramped up production to try to meet demand. This increase in the fourth quarter boosted the GDP.
What could go wrong?
Inflation has reached a 40-year high with ongoing shortages of labor and supplies. Spikes in COVID-19 infections could still dampen economic activity for short periods.
The Federal Reserve has announced its decision to raise interest rates for the first time in four years to combat the spike in prices. The central bank released a statement on Wednesday stating that it would start shrinking the balance sheet after raising interest rates.
The U.S. economy was fed with a trillion dollars in federal stimulus for two years, and most of it was in the form of cash handouts. Bloomberg reported that removal of all that could carve a hole in total demand worth at least 3% of GDP.
Analysts continue to be optimistic about Thursday’s report and expect economic activity to rebound quickly in this quarter once the omicron wave abates.
Read more: JPMorgan CEO sees 2022 could have best economic growth in decades, with more than four rate hikes
(With inputs from MarketWatch and Bureau of Economic Analysis)
Picture Credits: FT