US Q4 Growth Revised Lower To 6.9%, Slowing To Come

The US economy ended 2021 by expanding at a 6.9 percent annual pace from October through December, the government said on Wednesday, a slight downgrade on its previous estimates.

For all of 2021, the United States’ gross domestic product – its total output of goods and services – jumped by 5.7 percent, the fastest calendar-year growth since a 7.2 percent surge in 1984, in the aftermath of a brutal recession.

Previously, the government had estimated growth in last year's fourth quarter was 7 percent. The small downgrade reflected a smaller increase in consumer spending and fewer exports, the Commerce Department said.

Looking ahead, however, growth is likely to slow sharply this year, particularly in the first three months of 2022.

Higher inflation will likely weigh on consumer spending. Home sales have fallen, meanwhile, as the Federal Reserve has started pushing up borrowing costs, leading to a sharp increase in mortgage rates. Exports may weaken as overseas economies are disrupted by Russia's military campaign in Ukraine.

For the January-March quarter of this year, the biggest drag is likely to be a sharp reduction in the amount of goods businesses stock on their shelves and in warehouses. In last year's fourth quarter, companies engaged in a huge build-up of inventories in an effort to get ahead of supply chain problems over the winter.

That inventory restocking added nearly six percentage points to fourth quarter growth, a boost that wasn't repeated in the first three months of this year. Solid consumer spending likely pulled in more imports in the first quarter, economists forecast, while a stronger dollar and slower growth overseas reduced US exports.

Economists forecast that growth could fall to as low as 0.5 percent in the first three months of the year and may even slip into negative territory.

Still, that may well be a temporary hiccup. As the pandemic continues to fade, more Americans are travelling, eating out and flying. Businesses are also hiring at healthy levels and boosting pay.

The Federal Reserve forecasts the US economy will expand 2.8 percent this year, much lower than in 2021. (AP)