The U.S. economy ended 2021 by expanding at a brisk 7% annual pace from October through December, the government reported Thursday in a slight upgrade from its earlier estimate as businesses stepped up their restocking of supplies.
For all of 2021, the nation’s gross domestic product — its total output of goods and services — jumped by 5.7%, the fastest calendar-year growth since a 7.2% surge in 1984 in the aftermath of a brutal recession.
So far this year, though, the outlook for the economy has dimmed considerably in the face of accelerating inflation, higher borrowing rates, anxious financial markets and the likelihood of a serious military conflict caused by Russia’s aggression toward Ukraine.
Snarled supply chains, with resulting shortages of parts and goods, are also disrupting businesses. And American households this year won’t be receiving the government stimulus aid that they did last year — money that helped drive brisk consumer spending in 2021.
The International Monetary Fund has estimated that the U.S. economy will slow to growth of 4% this year. But the economy could weaken further if the Federal Reserve’s forthcoming interest rate hikes end up significantly slowing Americans’ borrowing and spending.
The Fed’s ultra-low rates had nurtured the rapid expansion that quickly followed the pandemic recession of 2020. But high inflation has forced the Fed to reverse course, with a succession of rates hikes expected to begin next month.
Russia’s invasion of Ukraine — and its likely fallout on world energy markets — also adds to the uncertainty surrounding the economic outlook.
The economy’s growth in the final quarter of 2021 was driven by a 33.5% jump in business investment as companies worked to replenish their inventories. In fact, inventory restocking accounted for 70% of the fourth-quarter growth.
Also contributing to the upgraded estimate of growth in the October-December quarter were stronger business investment and state and local government spending, offset slightly by modestly weaker consumer spending.
For all of 2021, consumer spending surged 7.9%, the fastest such growth since 1946. But it slowed to an annual pace of 3.1% in the October-December quarter as an uptick in coronavirus cases, which has now faded, kept more Americans at home and away from restaurants, travel destinations and entertainment venues.