The U.S. economy grew slightly less than previous estimates indicated in the fourth quarter of 2021, being revised down to a 6.9% annualized rate from 7%. Overall for the year, U.S. GDP went up 5.7%, the best mark since 1984.
Several factors will prevent 2022 from reaching such heights. First, as illustrated by the 30% GDP drop in the second quarter of 2020 followed by an even bigger growth in the next quarter, a sharp drop precipitates such a high climb. The economy is in much better shape to start 2022 than it was at the beginning of 2021, so there’s not as much room to grow.
There are also things that will limit consumer spending, such as persistent inflation caused by ongoing supply chain disruptions, higher mortgage rates stemming from the Federal Reserve’s decision to raise interest rates, and disruption to overseas economies because of Russia’s invasion of Ukraine.
The Fed predicts GDP growth of 2.8% for 2022, which would be a pretty good clip for a stabilized economy. The Fed also hopes the several interest rate hikes it has planned for the next two years will curtail inflation, which it wants to get down to 2%, about a quarter of the current rate.
The first quarter of 2022, which ends this week, is not expected to show much growth, and might even stray into negative territory. This in part because of the omicron COVID wave that swept the country in January and February, and also because businesses stocked up on inventory in the fourth quarter of 2021 and didn’t buy much at the beginning of this year.
Corporate profits, another contributor to inflation, increased by $20 in the fourth quarter, a growth rate of less than 1% and far down from the $268 billion they gained in Q2 of 2021.