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Continuing to rebound from pandemic shocks, the country’s economy grew 1.7% in the last three months of 2021, the Commerce Department said Thursday.

The figure, which has been adjusted for inflation, reflects growth in gross domestic product – the broadest measure of goods and services produced. On an annualized basis, the increase for the quarter was 6.9%.

For the full year, economic expansion was 5.7%, the largest since 1984 – an impressive feat, but also reflecting the extent of the damage inflicted by the coronavirus the previous year.

The fourth quarter was, to some extent, a respite from the waves of coronavirus. It started as the Delta variant waned and the impact of Omicron only started to be felt in the last few weeks. Economists expect Omicron to be a drag on the economy in January and much of February. But they say activity should normalize as the variant subsides and spring approaches.

Strong growth in the fourth quarter was driven in part by consumer spending, which “primarily reflected an increase in services, led by health care, recreation and transportation,” the Commerce Department said. Private investment and rising inventories were also important factors.

“It’s really strong data,” said Jane Oates, assistant secretary of labor in the Obama administration and president of Working Nation, a nonprofit group focused on employment issues. The increase in inventory, she said, “shows at least a gradual improvement in supply chains.”

Consumer spending and private investment have revived after the initial hit of the pandemic thanks to vaccination efforts, cheap credit terms and additional rounds of federal aid to households and businesses. The labor market has recovered nearly 19 million of the 22 million jobs lost near the peak of virus-induced business suspensions.

The initial momentum provided by the government stimulus and post-vaccine resurgence in many sectors is expected to fade further, and the Federal Reserve plans to use its policy tools in the coming months to rein in inflation, which has hit in December its highest level in 40 years.

Level where the economy was on track

reach before the pandemic.

Trend line of

1st trimester. 2015 to

4th trimester. 2019

Adjusted for inflation and

seasonality, at annual rate

Level it up

the economy was

on the right track for

reach before

the pandemic.

Trend line of

1st trimester. 2015 to

4th trimester. 2019

Adjusted for inflation and

seasonality, at annual rate

“Fiscal and monetary policy have been committed to aggressively supporting the economy during the pandemic, and it has worked,” said Julia Coronado, a former Federal Reserve economist and professor of finance at the University of Texas at Austin. “Not only did we achieve the goal of shortening the recession,” she said, “we exceeded all expectations” on the speed of re-employment.

As recently as last February, the Congressional Budget Office projected that it would take until 2024 to reach the current unemployment rate of 3.9%, down from a peak of 14.7% in April 2020.

President Biden hailed the year’s economic growth and job gains as proof that his policies were paying substantial dividends. “The GDP numbers for my first year show that we are finally building an American economy for the 21st century,” he said in a statement Thursday.

But the economic recovery has recently been overshadowed by the highest inflation rates since 1982. Consumer price increases – which reached 7% on the year to December – began to intensify in the spring when demand overloaded supply networks already disrupted by the pandemic.

Import prices, for example, were 10.4% higher in December than a year earlier, according to the Labor Department. Many companies large and small are bracing for such supply chain issues to extend beyond the summer – an unwanted sign for workers whose wages have risen at the fastest rate in decades. , while their purchasing power as consumers has been undermined by more expensive goods.

Percentage change from

gross domestic product

Since the last trimester

before the pandemic

Percentage change from

gross domestic product

Since the last trimester before

the pandemic

A Gallup poll conducted this month found that Americans view the economy more negatively than positively – with just 29% saying the economy is improving, while 67% believe it is getting worse.

Yet 72% say now is a good time to find a quality job.

“It all depends on what you prioritize,” said Allison Schrager, an economist and senior fellow at the Manhattan Institute, a conservative think tank. Policymakers in Washington have decided to err on the side of providing too much pandemic aid rather than too little – and Ms Schrager is among analysts who say the trade-offs of that decision are becoming apparent. If there had been less stimulus, she said, “inflation wouldn’t be as bad as it is.”

At a press conference on Wednesday, Jerome H. Powell, the Fed Chairman, acknowledged that “bottlenecks and supply constraints limit how quickly production can meet higher demand at term” and that “these problems have been more significant and longer lasting than anticipated.”

As analysts ponder the direction and degree of price increases this year, many see the spring months as a crucial pivot point, said Ellen Zentner, managing director and chief U.S. economist at Morgan Stanley. . This is partly because the Consumer Price Index reports for March and April of this year will provide the first relatively stable year-over-year comparisons that experts will have seen in three years: 2020 data was juxtaposed to the 2019 pre-pandemic normal; reports in 2021 after the economy reopened were measured against the abnormal and partially depressed environment of the vaccine-free economy in 2020.

“The hope is that this will change as we enter the second quarter,” Ms Zentner said. And this high single-digit inflation “does not drag on further into the year”.

In quarterly earnings calls, JPMorgan Chase and Bank of America, which together serve 140 million households, reported that family finances are technically better than before the pandemic. Bank of America said its customers spent a record $3.8 trillion in 2021, a 24% jump from 2019 levels. But analysts note that dwindling savings and continued price increases – as well as any new variant of coronavirus – could dampen consumption.

Thursday’s report said the cash reserves that many Americans were able to accumulate during the pandemic continued to decline: Real personal disposable income fell 5.8% in the fourth quarter, and the personal savings rate — the percentage of overall disposable income that goes into savings each month – was 7.4%, down from 9.5% in the third quarter.

Although factory production increased by 3.5% in December compared to the previous year, manufacturing production fell 0.3% last month, a result weaker than most forecasts. The spread of the Omicron variant appears to prolong manufacturers’ struggles to find a steady workforce, as infections lead to absences. As companies outbid each other to lead the way in supplying the parts that make up their finished products, material shortages for hard-to-find components, such as computer chips, also remain a headache. .

Shipments of basic capital goods — a popular indicator of business investment in U.S. capital spending — rose 1.3% in the fourth quarter but were flat in December. Some industry analysts are pointing to the broader quarterly trend as a sign that the private sector believes strong growth will persist through both inflationary pressures and speed bumps associated with variants of the coronavirus.

The average business owner “sees a very strong environment right now,” said Oren Klachkin, chief economist for US industry and regional research at Oxford Economics. “They want to increase investment because they want to meet that demand – and they have every reason to invest.”

The International Monetary Fund, citing tighter Fed policy and a planned halt to any new stimulus spending by Congress, this week cut its 2022 U.S. growth forecast by 1.2 percentage points, to 4% – although this increase still exceeds the annual average from 2010 to 2019.

Ben Casselman contributed report.

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