US economic growth accelerated in the fourth quarter as companies replenished depleted stocks to meet strong demand for goods, which helped make 2021 its best result in nearly four decades.

The Gross domestic product it rose at an annualized rate of 6.9% last quarter, the Department of Commerce said in its GDP flash estimate on Thursday, following a 2.3% expansion in the third quarter.

Economists polled by Reuters predicted average GDP growth of 5.5 percent. Estimates ranged from a rate as low as 3.4% to a pace as high as 7.0 percent.

The economy grew by 5.7% in 2021, the largest expansion since 1984. In 2020, it shrank by 3.4%, the largest decline in 74 years. Last year’s growth was fueled by a large fiscal stimulus, as well as very low interest rates.

However, the momentum seems to have faded in December, as a spate of COVID-19 infections, fueled by the omicron variant, helped reduce spending as well as disrupt activity in factories and service businesses.

Steady growth last year supported the Fed’s pivot to raise interest rates in March.

The chairman of the Fed, Jerome Powell, after a two-day policy meeting on Wednesday, told reporters that “the economy no longer needs high and sustained levels of monetary policy support” and that “it will soon be appropriate to raise rates”.

The sharp surge in growth over the past year may cheer the president up a bit Joe Biden, whose popularity is falling in the face of a stuck domestic economic agenda after Congress failed to pass its $ 1.75 trillion “Build Better Back” plan.

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Inventory investment accounted for most of the increase in GDP growth in the fourth quarter, after companies reduced it since the first quarter of 2021.

Expenditure shifts during the pandemic to goods of services, a surge in demand that put pressure on supply chains.

Last quarter’s growth was also boosted by a jump in consumer spending in October, before declining sharply as omicron spread across the country.

Consumer spending, which accounts for more than two-thirds of economic activity, has been hampered by shortages of new vehicles and other goods, as a global shortage of chips hits production.

The reduction in the purchasing power of households, with inflation well above the target of 2% of the Fed, also hampered consumer spending at the end of the fourth quarter.

Another report from the Department of Labor on Thursday showed that initial applications for unemployment they dropped by 30,000, to a seasonally adjusted figure of 260,000, during the week ending January 22nd.

Despite a slump in the first quarter due to the pandemic problems, the worst inflation in decades, supply chain bottlenecks and forthcoming interest rate hikes, the economy is expected to stay ahead this year, with growth estimates of up to 3.9 per cent.



Reference-www.eleconomista.com.mx

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