The U.S. economy ended 2021 by expanding at a healthy 6.9% annual pace from October through December, the government reported Wednesday, a slight downgrade from its previous estimates.
For all of 2021, the nation’s gross domestic product — its total output of goods and services — jumped by 5.7%, the fastest calendar-year growth since a 7.2% surge in 1984 in the aftermath of a brutal recession.
Looking ahead, however, growth is likely to slow sharply this year, particularly in the first three months 2022. Higher inflation will likely weigh on consumer spending as Americans take a dimmer view of the economy. Home sales have fallen 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 invasion of Ukraine.
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. And solid consumer spending likely pulled in more imports in the first quarter, economists forecast, while a stronger dollar and slower growth overseas reduced U.S. exports. The combination should also weaken the economy in the first quarter.
Still, the first quarter will likely be a temporary hiccup. As the pandemic continues to fade, more Americans are traveling, eating out and flying. Businesses are hiring at a healthy clip and boosting pay. The higher income isn’t enough to fully offset inflation but should support continued consumer spending.