The US economy grew way more than expected in the fourth quarter as Omicron fueled the biggest virus surge yet
gross domestic productgrew at an annualized rate of 6.9% in the fourth quarter of 2021.
- That exceeded the median estimate of a 5.5% jump and was a huge pickup from the prior quarter's 2.3% growth.
The US economic recovery picked up the pace in the last months of 2021 as the Delta wave faded and the Omicron variant became the latest threat to the rebound.
The country's gross domestic product grew at an annualized rate of 6.9% through the fourth quarter of last year, the Commerce Department said Thursday. That came in way above the median forecast of a 5.5% gain from economists surveyed by Bloomberg. It also showed growth accelerating from the 2.3% pace seen in the third quarter.
The print reflects the strongest quarter of
On an annual basis, the US economy grew 5.7% last year. That's the largest one-year expansion since 1984. The print serves as yet another superlative for an extraordinary year of recovery. The country added 6.4 million payrolls through 2021, the largest one-year gain in history. The outstanding expansion had its drawbacks, however. Inflation accelerated to four-decade highs, offsetting most of the strong wage growth seen through last year and posing a new risk to the recovery.
Several major headwinds continue to hold the recovery back. The fourth quarter saw virus cases rip higher as Omicron's spread intensified, yet the period doesn't capture the worst of the latest wave. Daily virus cases peaked with more than 1.4 million new infections on January 10, and while counts have declined since, the current 7-day average is still roughly twice the level seen at the end of last year. As such, economists won't get the full picture of Omicron's fallout until first-quarter GDP data is published.
Tangles in the global supply chain also hindered output, albeit not as much as in the third quarter. The last three months of 2021 saw modest improvements to the supply-chain problem, with key factories ramping up production and shipping delays shrinking. Bottlenecks are "easing in all the right places," and it's likely the US is past the worst of the supply mess, JPMorgan economists said in an early January note.
Historically high inflation swung even higher in the fourth quarter as supply woes and overwhelming demand continued to drive prices higher. The Consumer Price Index soared 7% year-over-year in December, marking the strongest price growth since 1982. Thursday's preliminary GDP reading signals the elevated price growth did little to hamper growth and showed some signs that the inflation nightmare is easing.
The pickup in quarterly output was mostly powered by strong increases in private inventory, exports, consumer spending, and nonresidential fixed investment, according to the report. Retailers and wholesale trade businesses accounted for most of the inventory buildup. That's in stark contrast to earlier in 2021, when businesses' attempts to rebuild inventories crashed into supply chain issues. The improvement suggests firms will better match supply with demand in the year ahead.
Declines in federal, state, and local government spending weighed on GDP through the fourth quarter, the Commerce Department said. Imports also accelerated and dragged on the headline growth number.
The fourth quarter's robust growth may be the highest print of the recovery moving forward. The Federal Reserve hinted on Wednesday it's prepared to raise interest rates from near-zero at its March meeting as it looks to rein in its support and fight inflation. The central bank's emergency asset purchases are already on pace to end by early March, and higher rates would all but certainly weigh on economic growth.
It's a tradeoff that has to be made, according to Fed Chair Jerome Powell. While rate hikes might lead to lower GDP prints, they'll also help cool inflation and keep price growth from presenting a new crisis.
"In light of the remarkable progress we've seen in the labor market and inflation that is well above our 2% longer-run goal, the economy no longer needs sustained high levels of monetary policy support," Powell said in a Wednesday press conference.
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