U.S. gross domestic product (GDP) ramped up in the final months of 2021, with still-solid consumer spending helping stoke growth and offset early negative impacts from the Omicron variant’s spread.
The Bureau of Economic Analysis (BEA) released its first estimate of fourth-quarter GDP on Thursday. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:
GDP quarter-over-quarter, annualized: 6.9% vs. 5.5% expected, 2.3% in Q3
Personal consumption: 3.3% vs. 3.4% expected, 2.0% in Q3
Core personal consumption expenditures, quarter-over-quarter: 4.9% vs. 4.9% expected, 4.6% in Q3
Growth in the fourth quarter rebounded more than expected from the third quarter’s disappointing rate of expansion, when GDP rose at a 2.3% annualized rate — its slowest since mid-2020.
But despite the brief deceleration in third-quarter GDP, economic growth throughout 2021 had been robust as vaccinations picked up across the country and stay-in-place behaviors began to abate. For the full-year 2021, GDP grew at a 5.7% rate, marking the fastest since 1984. And this marked a sharp reversal from the contraction seen in the economy in 2020, when GDP shrank by 3.4%.
A jump in consumer spending during this year’s record holiday shopping season helped contribute to the headline gain in the fourth quarter. As consumers attempted to get ahead of supply chain delays and out-of-stocks, spending was pulled forward from the typical holiday period of November and December to October. This helped to lift overall fourth-quarter consumption for the final three months of the year to a rate well above that from the third quarter, even as retail sales in December pulled back on a month-over-month basis.
But even more notable during the quarter was the jump in private inventories, as companies worked to replenish supplies drawn down in the early phase of the reopening as demand soared. The build in private inventories contributed 4.9 percentage points to the headline 6.9% jump in GDP, and was led in turn by inventory investment by motor vehicle dealers, the BEA said in its report
Other areas of the economy, however, served as drags to GDP. Government consumption expenditures subtracted about half of a percentage point from headline GDP, reflecting a “decrease in defense spending on intermediate goods. and services,” the BEA said. And government assistance payments also decreased during the second half of the year relative to the first, as COVID-related relief programs tapered off.
Net trade had a net neutral impact on GDP following five consecutive quarters of negative contribution, as a surge in imports — which subtracts from GDP — was offset by a rise in exports during the quarter.
Embedded in the report was also yet another sign of soaring inflation, with widespread supply shortages and elevated consumer demand pushing up prices. The GDP price index soared by 6.9% — the most since 1981 — to exceed consensus estimates for a 6.0% gain. And core personal consumption expenditures (PCE) accelerated to reach a 4.9% quarter-over-quarter pace, compared to the third quarter’s 4.6% clip.
And as usual, the latest quarterly GDP report serves as a backwards-looking indicator capturing the economic momentum heading into the first quarter of 2022. Given that the Omicron variant first discovered in the U.S. only very late in November, notable impacts from the virus were likely not reflected in the latest GDP print.
Many economists are expecting to see the data reflect a deceleration in growth for the start of this year, as the further spread of Omicron dampened activity and compounded with other drags to the economy. Just earlier this week, the International Monetary Fund (IMF) lowered its forecast for U.S. and global growth this year, citing ongoing supply chain challenges, lower expected fiscal stimulus after the collapse of President Joe Biden’s sweeping Build Back Better package, and the pullback of highly accommodative monetary policies from the Federal Reserve.
“The pace of economic momentum has slowed in recent weeks due to the impact from the Omicron variant,” Sam Bullard, Wells Fargo managing director and senior economist, wrote in a note ahead of Thursday’s report. “Add on the expiration of the monthly Child Tax Credit and ongoing challenges to the supply chain (labor, material and transportation), first quarter GDP growth looks to have decelerated substantially — our call 2.9%.”
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter
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