By Paul Wiseman, Associated Press on January 27, 2022.
WASHINGTON (AP) — The U.S. economy grew last year at the fastest pace since Ronald Reagan’s presidency, rebounding resiliently from the brief but devastating coronavirus recession of 2020.
The country’s gross domestic product – its total output of goods and services – rose 5.7% in 2021. It was the strongest calendar-year growth since a 7.2% increase in 1984 after a previous recession. The economy ended the year growing at a solid 6.9% annual rate from October through December, the Commerce Department reported Thursday.
Pressured by inflation and still plagued by the number of COVID-19 cases, the economy is expected to continue growing this year, albeit at a slower pace. Many economists have lowered their forecasts for the current quarter from January to March, reflecting the impact of the omicron variant. For the whole of 2022, the International Monetary Fund has forecast that national GDP growth will slow to 4% for 2022.
Many American businesses, especially restaurants, bars, hotels and entertainment venues, remain under pressure from the omicron variant, which has kept millions of people hunkered down at home to avoid crowds. Consumer spending, the main driver of the economy, could be further dampened this year by the loss of government support to households, which supported activity in 2020 and 2021 but has mostly expired.
Moreover, the Federal Reserve made it clear on Wednesday that it plans to raise interest rates several times this year to combat the highest inflation in nearly four decades. These rate hikes will make borrowing more expensive and possibly slow the economy this year.
Stemming from the 2020 pandemic recession, a healthy rebound was expected for 2021. GDP had shrunk 3.4% in 2020, the biggest full-year drop since an 11.6% plunge in 1946, when the country sank. demobilized after World War II. The outbreak of COVID in March 2020 had led authorities to order closures and businesses to close abruptly or reduce hours. Employers cut 22 million jobs. The economy sank into a deep recession.
But rock-bottom interest rates, huge injections of government aid — including $1,400 checks to most households — and, ultimately, the widespread rollout of vaccines revived the economy. Many consumers have regained the confidence and financial means to go out and spend again.
The recovery in demand has been so strong, in fact, that it has caught businesses off guard. Many struggled to acquire enough supplies and workers to meet a rapid increase in customer orders. With many people now working remotely, shortages have become particularly acute for goods ordered for homes, from appliances to sporting goods to electronic equipment. And with particularly rare computer chips, car dealerships have found themselves desperately short of vehicles.
Factories, ports and freight yards have been overwhelmed and supply chains have become entangled. Inflation started to pick up. Over the past 12 months, consumer prices have climbed 7%, the fastest year-over-year inflation since 1982. Food, energy and automobiles are among the items whose prices have increased the most.
At the end of last year, the economy began to show signs of fatigue. Retail sales, for example, fell 1.9% in December. And manufacturing slowed in December to an 11-month low, according to the Institute for Supply Management’s manufacturing index.