By Lucia Mutikani
WASHINGTON (Reuters) – U.S. economic growth accelerated in the fourth quarter as companies replenished depleted inventories to meet strong demand for goods, helping U.S. activity post its best performance in nearly four decades in 2021.
Gross domestic product (GDP) rose at an annualized rate of 6.9% in the last quarter, the Commerce Department said on Thursday in its preliminary GDP estimate, after a 2.3% growth pace in the third quarter. .
Economists polled by Reuters had forecast GDP growth of 5.5%. Estimates ranged from 3.4% to 7.0%.
The economy as a whole grew 5.7% in 2021, the strongest performance since 1984. It had contracted 3.4% in 2020, the biggest drop in 74 years.
Growth last year was fueled by massive fiscal stimulus as well as very low interest rates. The momentum, however, appears to have slowed in December amid a surge in Covid-19 infections, driven by the Ômicron variant, which has contributed to slashing spending and disrupting activity at factories and service companies.
Last year’s robust growth supports the Federal Reserve’s pivot towards raising interest rates in March.
Fed Chair Jerome Powell told reporters on Wednesday after a two-day monetary policy meeting that “the economy no longer needs high and sustained levels of monetary policy support” and that “it will soon be appropriate.” raise” interest rates.
Last year’s strong rebound in growth may offer some cheer to President Joe Biden, whose popularity has waned amid a stalled domestic economic agenda after the US Congress failed to pass his $1.75 trillion investment bill.
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Investment in inventories accounted for most of the expansion in US GDP growth in the fourth quarter. Companies had been down in inventories since early 2021. Spending shifted from services to goods during the pandemic, creating a demand boom that put pressure on supply chains.
Growth in the last quarter was also driven by a jump in consumer spending in October, before slowing considerably as Omicron spread across the country. Consumer spending, which accounts for more than two-thirds of US economic activity, has been hampered by shortages of vehicles and other goods. The global chip shortage is affecting production.
Reducing household purchasing power, with inflation well above the Fed’s 2% target, also weighed on consumer spending at the end of the fourth quarter.
The outbreak of coronavirus infections with the Ômicron variant has also impacted the job market, although this is expected to be temporary. Employers are desperate for workers, with 10.6 million open US jobs at the end of November.
A separate Labor Department report on Thursday showed initial claims for unemployment benefits fell by 30,000 to a seasonally adjusted rate of 260,000 during the week ended Jan.
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