US GDP Rises 6.9% in Q4, Trouncing Growth Forecasts Amid Omicron

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  • US gross domestic product grew 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 final months of 2021 saw the Delta wave subside before Omicron fueled an even worse virus surge.

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 economic growth since the third quarter of 2020, when the initial rebound from lockdowns powered the strongest GDP reading in US history. The latest acceleration signals the economy is far more resilient to the Omicron surge than the Delta wave, and hints that growth will remain above trend through 2022.

On an annual basis, the US economy grew 5.7% last year. That’s the largest one-year expansion since 1984. 

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 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.

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US GDP Rises 6.9% in Q4, Trouncing Growth Forecasts Amid Omicron originally appeared via