U.S. economy grows 6.9% in fourth quarter, GDP shows, as businesses restock and consumers boost spending

GDP got a big lift at the end of last year from frantic efforts by businesses to restock barren shelves and warehouses in time for the holiday season. The economy grew a lot slower if the inventory buildup is set aside.

Aided by massive government stimulus spending, GDP increased by 5.7% for the full year. That’s the biggest gain since 1984.

Before the pandemic, the economy was growing around 2.3% a year.

Big picture: The U.S. economy, harried first by delta and then by omicron, has grown in fits in starts since last summer.

Yet Americans have plenty of savings and businesses say demand is as high as ever. Economists predict the U.S. will grow strongly again — around 4% or so — in 2022 despite the end of government stimulus, especially if the coronavirus is kept at bay.

The chief obstacles? Ongoing shortages of labor and supplies that have boosted inflation to a nearly 40-year high. The Federal Reserve is also on the cusp of raising interest rates for the first time in four years to combat the spike in prices.

Key details: Consumer spending, the main engine of the economy, rose a solid 3.3% in the fourth quarter. Outlays had risen a smaller 2% in the third quarter.

The value of inventories soared by $240 billion — one of the biggest increases in decades — as companies ramped up production to try to meet demand.

Higher inventories are boost to GDP, and they were an especially big boost in the fourth quarter.

The economy won’t get a similar lift from restocking in the first quarter, however, and inventories might even be a negative. Early data point to the U.S. growing at a less than 2% annual clip in the first three months of the year.

Business investment rose a tepid 1.3% in the fourth quarter, meanwhile, and investment in housing declined for the third quarter in a row. Shortages and higher prices made companies more cautious about spending.

Government outlays fell 2.9% after most of the stimulus approved earlier in the year dried up.

Exports jump 24.5% in the fourth quarter and imports advanced 17.7%. Yet the U.S. is expected to post a record trade deficit in 2021 owing to a rapid increase in demand for foreign goods.

The rate of inflation grew at an 6.5% annual rate in the fourth quarter. Prices rose in 2021 at the fastest clip since 1982.

Looking ahead: “With the omicron wave falling quickly, shelves restocked and consumer demand generally strong, we should see the economy continue its healthy recovery this quarter,” said Robert Frick, corporate economist at Navy Federal Credit Union.

“While omicron will lead to weaker growth in the first quarter, activity is expected to rebound nicely once the latest pandemic wave abates and supply-chain glitches ease,” said senior economist Sal Guatieri at BMO Capital Markets. 

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.92%
and S&P 500
SPX,
+1.10%
were set to open higher in Thursday trades. Stocks fell the day before after the Fed indicated it could raise interest rates as early as March.