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4Q21 GDP: Advance Reading Shows Sharp Rebound

January 27, 2022
Bottom Line:  The advance estimate of 4th Quarter GDP showed more robust than expected growth, a swift rebound for the economy after the 3rd Quarter showed the slowest growth of the recovery. Quarter-on-quarter annualized growth was 6.9%, versus expectations of 6% and just 2.3% in the 3rd Quarter. Consumption grew at a 3.3% annualized rate, in line with the 4th Quarter of 2020, above the 3rd Quarter pace of 2% but below the rapid gains of the first half of 2021. Inventory reinvestment accounted for nearly 5 points of the 6.9 points of growth. The impact of residential investment was flat as the housing market cooled modestly. So too was the impact of net exports. Finally, business fixed investment added to growth modestly, while government spending was a drag. Overall, looking through the volatility in inventory investment, the recovery remained robust, but the trend in the pace of gains of crucial categories like consumption was decelerating. While stronger than expected at the headline level, this report still supports the consensus notion that growth should steadily decelerate over 2022, likely falling to the 2.5 - 4% annualized range.
Gross Domestic Product
ROSE by 6.9% in the 4th Quarter, higher than market expectations for an increase of 5.5%. Economic activity was 5.5% ABOVE its year-ago level.
Inventory Investment
ROSE by $240.3 billion, adding 4.90 percentage points to overall economic activity. Consequently, Real Final Sales ROSE by 1.9% and was 4.7% ABOVE its year-ago level. Additionally, Imports ROSE by 17.7% and ExportsROSE by 24.5% so Net Exports FELL by $21.4 billion. This implies that Real Final Domestic Demand ROSE by 1.9% and was 5.3% ABOVE its year-ago level.
Consumer Spending ROSE by 3.3%, contributing 2.25 percentage points to economic growth. Business Investment ROSE by 2.0%, adding 0.28 percentage points to GDP.  Intellectual property products increased by 10.6% while non-residential structures declined by 11.4%. Residential Investment FELL by 0.8%, subtracting 0.03 percentage points to economic growth. Finally, Government Purchases FELL by 2.9%, subtracting 0.51 percentage points to GDP. This was its 4th negative contribution in the last 12 quarters.  The GDP Price Index ROSE by 7.0%, compared with market expectations of 6.0%. This is also 6.0% ABOVE its year-ago level.