The US Bureau of Economic Analysis today issued some early-stage results for 2021, and the preliminary results were positive, for a change. Based on their analysis, 4th quarter 2021 GDP grew by 6.9%, the largest increase since 1984 (during the Regan Administration). This far exceeded the estimate of 5.5% made by industry economists. On an annualized basis, GDP rose by 5.7% vs. a decrease of 3.4% in 2020. All subcomponents reflected an increase, including nonresidential fixed investment, exports, residential fixed investment, and private inventory investment. Consumer goods and services also increased during the period.
The price index for GDP for the 4th quarter of 2021 vs. 2020 also rose, by 5.5%, as opposed to a much smaller increase of 1.4% from the same period in 2019 vs. 2020. Excluding the volatile food and energy sectors, the price index increased 4.6% vs. 1.4% in the prior year 4th quarter. In short, inflationary pressures are being evidenced in overall prices.
It should be noted that there was some cooling of the economy during the 4th quarter as the Omicron variant paused consumer spending in key sectors. In addition, supply chain issues and labor-force challenges also haunt the economy going forward. Also, government spending, a key component of economic support in 2020, virtually ceased by late 2021, and this too had a drag on the growth of the economy.
Overall, these are good preliminary results. However, they will likely be revised in future periods. Furthermore, there remains a lot of uncertainty in local and regional economies, especially ones that are dependent on folks working in offices. Also, the Federal Reserve will be forced within months to reckon with inflation, and to that end, they will raise key interest rates to slow price increases. This is a delicate dance for them to undertake, for this could result in either a recession or stagflation.