Economic Growth Surged in 2021, but Shows Signs of Moderating

January 27, 2022

The U.S. economy grew at a faster-than-expected pace in the final quarter of 2021, driven by increased output and consumer spending, though there are signs that the acceleration likely tailed off toward the end of the year.

Gross domestic product increased at a 6.9% annualized pace in the period between October and December, according to the Commerce Department. That is well above the 5.5% increase economist surveyed by Dow Jones had expected, and a stark acceleration from the 2.3% growth seen in the third quarter.

With Q4’s robust growth, 2021 as a whole saw annualized GDP growth of 5.7%, the strongest year since 1984.

Despite the year’s strong performance, there are signs that growth may be moderating. Output, which increased by 5.5% compared to the same period a year prior, was driven primarily by companies restocking their depleted inventories rather than selling to consumers. Excluding the inventory effects, output grew at a modest annual rate of 1.9% in the fourth quarter.

Consumer spending, which accounts for more than two-thirds of GDP, rose 3.3% for the quarter, but much of that growth occurred early in the quarter, and consumers reined in their spending toward the end of the year. A separate Commerce Department report showed that sales of durable goods, long-lasting items like cars and appliances, fell in December.

Most economists expect the U.S. economy to grow moderately this year. Americans have far larger savings than prior to the pandemic, and unemployment is expected to continue trending downward, but ongoing supply-chain disruptions, surging inflation, and climbing interest rates are likely to dull the economy’s momentum. The IMF recently slashed its growth forecast for the U.S. to 4%, one-half percentage point lower than the forecast made in October.

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