The U.S. economy grew at a much better pace than expected by the end of 2021, though acceleration was likely to slow as the omicron spread put a damper on employment and further hampered the global supply chain.
Gross domestic product, the sum of all goods and services produced in the period from October to December, increased at 6.9% annual rate, the Ministry of Trade reported on Thursday. Economists surveyed by the Dow Jones had been looking for a gain of 5.5%. The increase was well above the unaudited growth of 2.3% in the third quarter.
The gain came from increases in private inventory valuation, strong consumer activity as reflected in personal consumption expenditure, exports and business expenditure measured by non-residential investment.
General decline in the pace of government consumption minus GDP, and so did imports, which are measured as a pull on output.
The quarter brought an end to a 2021, which saw a 5.7% increase in annual GDP, the strongest pace since 1984, when the US tried to pull away from the unprecedented decline in activity in the early days of the Covid pandemic .
The markets reacted positively to the news, with equity futures showing progress, while government bond yields were mixed.
In other economic news on Thursday, the number of unemployed 260,000 in the week ending January 22 was slightly less than the 265,000 estimate and a drop of 30,000 from the previous week.
Orders for long-term durable goods also fell by 0.9% for December, which is worse than the estimate for a decline of 0.6%. Orders for durable commodities hit the lowest point since April 2020, reflecting a slowdown at the end of the year as omicron cases soared. The decrease was mainly driven by a decrease of 3.9% in transport orders.
However, the GDP report reflected an overall solid period for the economy, after output had fallen significantly over the summer. Supply chain problems linked to the pandemic combined with robust demand spurred by unprecedented stimulus from Congress and the Federal Reserve led to imbalances across the economic spectrum.
Consumer activity, which accounts for more than two-thirds of GDP, rose 3.3% in the quarter. Gross domestic private investment, a measure of business expenditure, rose 32%.
Inflation rose in 2021, especially in the second half of the year, as supply could not keep up with strong demand, especially for goods rather than services.
The US is entering 2022 on an uncertain basis, with Fed Chairman Jerome Powell on Wednesday warning that growth in the early part of the year is slowing, although he sees the economy in general as strong.
To that end, the Fed telegraphed an interest rate hike in March, the first since 2018. Central bankers also expect to complete their monthly asset purchases the same month and to begin liquidating their bond holdings shortly thereafter.
These tightenings come in response to the fact that inflation has been running at its highest pace for almost 40 years. Data on the Fed’s preferred inflation gauge, the price index for personal spending, will be released Friday morning.
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