In 2021, the nation's gross national product (its total output of goods or services) grew 5.7%. This was the highest calendar-year growth rate since 1984's 7.2% increase following a recession. According to the Commerce Department, the economy ended the year with a 6.9% annual growth rate from October through December. This was due to businesses replenishing their inventories.
Beth Ann Bovino (chief economist at Standard & Poor’s Global Ratings) stated that "it just goes to prove that the U.S. has learned to adapt and continues to produce."
The economy will slow this year, as it is still being squeezed by inflation and still weighed down by COVID-19 caseloads. Many economists have been lowering their forecasts for this quarter's January-March quarter to reflect the impact of the micron variant. The International Monetary Fund predicts that the nation's GDP growth rate will slow to 4% by 2022.
The omicron variant has put a lot of pressure on many U.S. businesses including restaurants, bars and hotels as well as entertainment venues. It has meant that millions of Americans have stayed at home, avoiding crowds, and it continues to affect many U.S. businesses. The loss of government assistance to households, which was supposed to have supported activity in 2020-2021, is likely to further limit consumer spending, the main driver of the economy.
The Federal Reserve also stated Wednesday that it will raise interest rates multiple time this year in an effort to combat the highest inflation rate in almost 40 years. These rate increases will increase borrowing costs and slow down the economy.
Last year's growth was driven by a 7.9% increase in consumer spending and 9.5% rise in private investment.
Consumer spending rose by 3.3% annually in the last three months of 2021. Private investment rose 32%, thanks to a rise in business inventories that companies stockpiled to meet increased customer demand. In fact, 71% of fourth-quarter growth was due to rising inventories.
"The upside surprise resulted largely from an increase in inventories, and details aren't quite as strong as the headline would indicate," Kathy Bostjancic (Oxford Economics' chief U.S. finance economist) stated in a research note.
President Joe Biden stated that he was finally creating an American economy for 21st Century, with the fastest economic growth and the highest year of employment growth in American history.
A healthy recovery was expected in 2021, following the 2020 pandemic recession. The GDP fell 3.4% in 2020. This was the largest single-year decline since the 11.6% drop in 1946 when the nation was demobilizing following World War II. Authorities ordered lockdowns in March 2020 and forced businesses to reduce their hours or close down. Employers cut 22 million jobs. The economy fell into deep recession.
However, super-low interest rates and huge infusions government aid (including $1,400 checks to most homes) helped revive the economy. Many consumers felt confident and able to spend again, thanks to the financial support.
Businesses were caught off guard by the strong rebound in demand. Many businesses struggled to find enough workers and supplies to keep up with a rapid increase in customer orders. Many people work remotely so shortages were especially severe for products ordered for home, including appliances, sporting goods, and electronic equipment. Auto dealers were also left with a severe shortage of computer chips, which meant that they were unable to supply vehicles.
Overcrowded ports, factories, and freight yards led to a snarling of supply chains. Inflation started to accelerate. Consumer prices rose by 7% over the past 12 month, the highest annual inflation rate since 1982. Prices rose the fastest for food, energy, and autos.
The economy started to show signs and symptoms of fatigue late last year. Retail sales fell 1.9% in December, according to the Institute for Supply Management. According to the Institute for Supply Management, manufacturing fell to its lowest point in 11 months in December.