US GDP grew 5.7% in 2021, the highest rate since 1984

The Gross Domestic Product (GDP) of the United States grew 5.7% in 2021, its biggest expansion since 1984, according to a preliminary Commerce Department estimate released Thursday.

In the fourth quarter, in annual projection, GDP was 6.9%, a much higher figure than expected by analysts, who predicted 5.6%.

Also, this increase last year is stronger than expected by the Federal Reserve (FED), which anticipated a rebound of 5.5%, and also the rate projected by the International Monetary Fund (IMF), which expected 5.6%.

The fourth quarter GDP is also 3.1% higher than the fourth quarter of 2019, the last one before the pandemic.

Using other more widespread comparison mechanisms, which are applied in large economies, comparing the fourth quarter of 2021 with the fourth quarter of 2020, as China does for example, expansion amounted to 5.5%.

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Also, household consumption, which accounts for nearly three-quarters of the US economy, rose 7.9% last year.

In 2020, the COVID-19 crisis had caused a 3.5% contraction in US GDP, the largest drop since 1946.

Stimulus and COVID-19

Growth in the US economy had been strong early last year, buoyed by massive stimulus packages that boosted consumer spending and then by an ebbing of the pandemic thanks to an active vaccination campaign in the spring.

In the first quarter the world’s largest economy rose 6.4% and in the second 6.7%, always in annual projection. Between April and June it returned to its pre-pandemic level. But in the third quarter of 2021 there was a setback, and the expansion was 2.3%, due to the appearance of the delta variant of COVID-19.

Now growth is expected to slow in the first quarter of 2022, weighed down by a new variant, omicron, which has caused a massive wave of infections and has reduced economic activity. Consumer prices rose sharply last year, and are a concern for the Joe Biden administration.

According to the PCE index of the Department of Commerce, the one that the central bank considers the most, the increase was 3.9% in 2021. But the other inflation index, that of the Department of Labor (PCI), published on January 12, had reported a 7% price increase in 2021, which would constitute the biggest rise in 12 months since June 1982.

Rates against inflation

The US Federal Reserve signaled on Wednesday that it is in favor of raising its benchmark rates at its next meeting in mid-March.

“I would say that the committee is in favor of raising rates (…) in the march meeting, assuming that the conditions are appropriate to do so, ”said the president of the organization, Jerome Powell, at a press conference after the two-day meeting of the central bank’s monetary committee.

The Fed kept its interest rates at zero on Wednesday.

In its statement prior to Powell’s statements, the agency explained that “with inflation well above 2% and a strong labor market, the (monetary) committee believes that it will soon be appropriate to raise the range of reference rates.” Powell was in charge of specifying the terms for the increase.

Benchmark rates were cut in March 2020 to deal with the coronavirus pandemic, supporting consumption and investment.

Now the objective of the organism when raising its interest rates is to influence prices by slowing down demand. Higher rates make credit more expensive for individuals and companies.

Source: AFP