U.S. GDP Spikes 6.9% In Q4 Amid Surge In Inventories

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Preliminary data released by the Commerce Department on Thursday showed a sharp increase in U.S. economic activity in the fourth quarter of 2021.

The report said real gross domestic product spiked by 6.9 percent in the fourth quarter after jumping by 2.3 percent in the third quarter. Economists had expected GDP to surge up by 5.5 percent.

The stronger than expected GDP growth was partly due to a massive surge in business inventories, which added 4.9 percentage points, the second largest contribution since 1987.

"While normally such a large inventory build would be very negative for future growth, in today's environment it points to an easing of supply-chain snarls and means consumers will have more products to purchase once the winter lull passes," said Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics.

The report also showed an acceleration in the pace of consumer spending, which shot up by 3.3 percent in the fourth quarter following a 2.0 percent advance in the third quarter.

A spike in exports also contributed to the GDP growth in the fourth quarter, although the positive contribution was offset by a jump in imports, which are a subtraction in the calculation of GDP.

The Commerce Department noted the pace of growth was also limited by decreases in both federal and state and local government spending.

On the inflation front, the report showed the annual rate of growth in core consumer prices, which exclude food and energy, accelerated to 4.6 percent in the fourth quarter from 3.6 percent in third quarter, reaching the highest level since 1989.

"While we see a rotation in consumer spending towards more service consumption and an easing in supply chain stress leading to markedly slower inflation in H2, inflation risks lie on the upside," said Bostjancic.

For the full year, the Commerce Department said real GDP surged by 5.7 percent in 2021 following a 3.4 percent slump in 2020, with the turnaround reflecting increases in all major subcomponents.

"After a Q1 lull in economic activity, we foresee a spring rebound led by in-person services sectors," said Bostjanci. "We anticipate real GDP will grow 3.7% this year."

She added, "However, risks are tilted to the downside, given an unresolved health situation, a growing fiscal drag, and a more hawkish Federal Reserve."

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