MARK-TO-MARKET: Economic growth is surprising, but what does the future hold? | Business & Economy

The Commerce Department recently provided its latest insight into the state of the US economy. In the fourth quarter from October to December, the economy grew at an annualized rate of 6.9%. That beat Wall Street’s forecast of 5.7% and was well ahead of the third quarter pace of just 2.3%. For the year 2021, the country’s economic growth rate was 5.7%, the fastest annual rate since 1984.

The continued strength of the US economy was somewhat expected. Since the first fallout from the global pandemic in March and April 2020, the US economy has recovered rapidly. Our post-pandemic recovery has been fueled in large part by the introduction of vaccines and the more than $5 trillion in government stimulus funds. Unfortunately, an inherent consequence of this massive stimulus money is rising inflation, which now stands at 7%, a 40-year high.

Although celebrated by Wall Street, the surprisingly strong fourth-quarter economic report comes with a caveat. Historically, the primary driver of the US economy has been consumer spending, which accounts for more than two-thirds of our country’s economic growth. In the fourth quarter, the consumer spending component certainly impressed, rising at an annualized rate of 3.3%. But the main source of the 6.9% high-octane growth in the fourth quarter actually came from a premature increase in private inventory levels.

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Private stocks represent the volume of physical goods held by private companies. For much of 2021, traders have been dealing with depleted inventories of goods for sale due to continued supply chain disruptions and labor shortages. In the fourth quarter — the heart of the holiday shopping season — businesses worked overtime to fill their empty shelves and warehouses to meet surging consumer demand. As a result, private inventories rose $224.7 billion, the biggest quarterly gain in US history.

Due to continued delays in receiving goods, the fourth quarter inventory surge was not expected until the first and second quarters of 2022. Indeed, much of the economic growth expected in the first half of the year was basically pulled forward. fourth trimester. As a result, economic growth for 2022 has since been revised down. For the whole of 2022, the expected pace of economic growth has been reduced from around 4% to around 2.3-2.7%. This rate is slightly higher than the historical average rate of 2.2%.

As the tailwinds of economic recovery begin to fade, 2022 will be a much tougher year. The easy wins – the free spin – are quickly coming to an end. Going forward, any growth in the US economy will now be much harder to come by.

Mark Grywacheski is an expert in financial markets and economic analysis and is an investment advisor at Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed in this document are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell securities at any particular price. The information has been obtained from sources believed to be reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment adviser with the United States Securities Exchange Commission.

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