KATHMANDU: The U.S. economy grew last year at the fastest pace since 1980s, bouncing back resiliently from 2020′s brief but devastating coronavirus recession, an Associated Press (AP) report said.
The gross domestic product (GDP) — its total output of goods and services — expanded 5.7% in 2021. It was the strongest calendar-year growth since a 7.2% surge in 1984 after a previous recession.
The U.S. economy grew briskly at a 6.9% annual pace from October through December last year as businesses replenished their inventories, the report said Thursday, quoting US Commerce Department.
Squeezed by inflation and still under the grip of COVID-19, the U.S. economy is expected to slow this year. Many economists downgraded their forecasts for the current January-March quarter, reflecting the impact of the omicron variant. In addition, the International Monetary Fund forecast that the US GDP growth would slow to 4%.
Many U.S. businesses, especially restaurants, bars, hotels and entertainment venues, remain affected due to omicron variant, which has kept millions of people hunkered down at home to avoid crowds.
Consumer spending, the primary driver of the economy, maybe further held back this year by the loss of government aid to households, which nurtured activity in 2020 and 2021 but has mainly expired.
What’s more, the Federal Reserve made clear Wednesday that it plans to raise interest rates multiple times this year to battle the hottest inflation in nearly four decades. Those rate increases will make borrowing more expensive and perhaps slow the economy this year, said the report.
Growth last year was driven up by a 7.9% surge in consumer spending and a 9.5% increase in private investment. For the final three months of 2021, consumer spending rose at a more muted 3.3% annual pace. But private investment rocketed 32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, accounted for 71% of the fourth-quarter growth, AP reported.
In a statement, President Joe Biden said, “We are finally building an American economy for the 21st century, with the fastest economic growth in nearly four decades, along with the greatest year of job growth in American history.”
Arising from the 2020 pandemic recession, a healthy rebound had been expected for 2021. GDP had shrunk 3.4% in 2020, the steepest full-year drop since an 11.6% plunge in 1946, when the nation was demobilizing after World War II. The eruption of COVID in March 2020 had led authorities to order lockdowns and businesses to abruptly shut down or reduce hours.
Employers slashed a staggering 22 million jobs. The economy sank into a deep recession.
But super-low interest rates, huge infusions of government aid — including $1,400 checks to most households — and, eventually, the widespread rollout of vaccines revived the US economy. Many consumers regained the confidence and financial wherewithal to go out and spend again.
The resurgence in demand was so robust, in fact, that it caught businesses off guard. Many struggled to acquire enough supplies and workers to meet a swift increase in customer orders.
With many people now working remotely, shortages became especially acute for goods ordered for homes, from appliances to sporting goods to electronic equipment. And with computer chips in especially short supply, auto dealers were left desperately short of vehicles.
Factories, ports and freight yards were overwhelmed, and supply chains became ensnarled. Inflation began to accelerate. Over the past 12 months, consumer prices soared 7% — the fastest year-over-year inflation since 1982. Food, energy and autos were among the items whose prices soared the most, according to AP.
Late last year, the US economy began to show signs of fatigue. Retail sales, for instance, fell 1.9% in December. And, manufacturing slowed in December to its lowest level in 11 months, AP quoted the Institute for Supply Management’s manufacturing index.