After the onset of the pandemic brought contraction in 2020, it was no surprise the U.S. economy grew in 2021. But a stronger than expected fourth quarter even as the omicron variant spread allowed the country to close out the year with a 5.7% GDP growth rate, the highest since 1984.
Employers cut 22 million jobs in 2020 as the GDP dropped 3.4%, its worst performance since 1946 when World War II production ramped down.
Q4 of 2021 saw growth of 1.7%, higher than economists projected as supply chain troubles that had plagued the economy began to ease. Demand was high all year as vaccine rollouts helped consumer confidence, but with worldwide supply chains affected by COVID outbreaks and restrictions in different parts of the world, supply struggled to keep up.
Factories shut down for extended periods and a lack of freight drivers let to backups that had ships sitting offshore from busy ports. Inventories went up in the fourth quarter as those problems were partially solved, accounting for the strong kick to end the year.
That pace is practically impossible to keep up, and projections for 2022 have GDP still growing, but at a much slower pace.
“The pace of economic momentum has slowed in recent weeks due to the impact from the Omicron variant,” Sam Bullard, Wells Fargo managing director and senior economist, wrote. “Add on the expiration of the monthly Child Tax Credit and ongoing challenges to the supply chain (labor, material and transportation), first quarter GDP growth looks to have decelerated substantially — our call 2.9%.”
Consumer spending and private investment drove the gains in 2021. Spending has cooled off, but investment has only soared — rising 32% in Q4 — as businesses finally began to get inventory of goods in stock.