In the fourth quarter of last year, the US economy’s annual rate was 6.9%. This means that the year had the strongest growth in almost four decades, which is impressive considering the pandemic-induced recession. The fourth quarter GDP increased from the third quarter GDP of 2.3%. This was due to households' increased spending and companies increasing their inventories after supply shortages. From the fourth quarter of 2020 to the fourth quarter of 2021, output increased by 5.5%. The last time the economy grew this quickly was in 1984 during President Reagan’s term. During this time, the economy was recovering from a recession and high inflation.
However, despite the growth of the fourth quarter, this year might only have a modest growth rate. On Thursday, stocks rose when the GDP report was released in the morning but then fell later that day. Most of the growth in companies was due to restocking inventories, which isn’t sustainable, so excluding inventory, output only grew at a rate of 1.9%. Also in the fourth quarter, consumers decreased their spending due to the new variant of Covid-19. Sales of durable goods, like cars, decreased in December as well. Even though the economy’s growth rate is not actually growing as much as 6.9%, the economy is still growing, just at a slower pace than pre-Covid-19.
It is interesting to see how the annual rate and the GDP rate grew at such a high rate but are counterbalanced by the low growth output. With the similar numbers from 1984, should we expect for the economy to almost mimic their post recession growth, if companies can increase their output, or should we be expecting something different and new.
ReplyDeleteWhile economy growth has been really high, I think it is also important to consider inflation. I believe it was a smart move to use stimulus packages to keep the economy afloat during the pandemic, however I think it is now time for the Fed to counter the inflation. I think this will help decrease the high prices we are currently facing as well.
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