U.S. Economy Grows Slightly More Than Initially Estimated In Q4

Business

The U.S. economy grew by slightly more than originally estimated in the fourth quarter of 2021, according to a report released by the Commerce Department on Thursday.

The report showed the increase in real gross domestic product in the fourth quarter was upwardly revised to 7.0 percent from the previously reported 6.9 percent. The upward revision matched economist estimates.

The jump in GDP in the fourth quarter reflected a significant acceleration from the 2.3 percent increase in the third quarter.

“The U.S. economy is still displaying solid underlying fundamentals, but it is facing rising headwinds from a negative fiscal impulse and significant policy tightening by the Federal Reserve to combat high inflation,” said Lydia Boussour, Lead U.S. Economist at Oxford Economics.

She added, “Moreover, the Russia-Ukraine conflict is adding uncertainty to the inflation, equity market and economic outlook and risks fueling higher inflation and tighter financial conditions.”

The stronger than previously estimated GDP growth in the fourth quarter primarily reflected upward revisions to non-residential fixed investment, state and local government spending, and residential fixed investment.

The Commerce Department noted the upward revisions were partly offset by downward revisions to consumer spending and exports.

The sharp increase in GDP in the fourth quarter was partly due to a massive surge in business inventories, which added 4.9 percentage points, the second largest contribution since 1987.

The report also consumer spending growth accelerated to 3.1 percent in the fourth quarter from 2.0 percent in the third quarter, although the jump was downwardly revised from 3.3 percent.

The GDP growth also reflected increases in exports and non-residential fixed investment that were partly offset by decreases in government spending and an increase in imports, which are a subtraction in the calculation of GDP.

With regard to inflation, the report showed the annual rate of growth in core consumer prices, which exclude food and energy, accelerated to 4.6 percent in the fourth quarter from 3.6 percent in third quarter.

“With recent inflation readings greatly exceeding expectations, we believed the Fed should kick off its tightening cycle with a 50 basis point rate hike in March,” said Boussour.

“However, the fallout from the Russian invasion of Ukraine likely leads to a more conservative 25 basis point rate lift-off,” she added. “The Russian invasion also introduces downside potential to our forecast for a total of 175 basis points of tightening this year.”

Source: Read Full Article