GDP Downgraded Slightly Back to 6.9%, Breaking From Economists’ Upward Predictions
The real gross domestic product (GDP) increased at an annual rate of 6.9% in the fourth quarter of 2021, according to the Bureau of Economic Analysis (BEA), and the economy grew at a 2.3% rate in the third quarter.
Economists polled by Reuters had expected GDP growth would be revised up to a 7.1% rate. The 6.9% figure is also slightly down from the BEA estimate issued last month — which stood at 7%. The downward revision primarily reflected downward revisions to personal consumption expenditures (PCE) and exports that were partly offset by an upward revision to private inventory investment, the BEA said.
Louis Ricci, Head Trader at Emles Advisors, told GOBankingRates that “we don’t view the .1% downward revision as material. Forward looking is more important — economist consensus is 1.5% for Q1 2022 and 3.3% Q2 2022,” Ricci said. “The economy is still growing, but keep an eye on the Atlanta Fed GDPNow forecast, which is more real-time than economist consensus. On March 24th it was revised down from 1.02% to .86%.”
The fourth quarter GDP reflected the continued economic impact of the COVID-19 pandemic.
“In the fourth quarter, COVID-19 cases resulted in continued restrictions and disruptions in the operations of establishments in some parts of the country. Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased as provisions of several federal programs expired or tapered off.,” the BEA said in the release.
Jordan Waldrep, CIO of TrueMark Investments, told GOBankingRates that worrying levels of inflation persist and this report keeps those concerns front and center in investors’ minds as the FED starts to increase rates.
“We expect investors to continue to balance these two issues as the FED addresses inflation. Academic work shows that pandemics have historically resulted in a short period of inflation followed by an extended period below inflation trend levels. If that holds true, the FED’s actions to curtail inflation have a strong possibility of success,” Waldrep said.
In addition, in 2021, real GDP increased 5.7% unrevised from the second estimate, in contrast to a decrease of 3.4% in 2020. Reuters reported that the 5.7% growth is the strongest since 1984, after the government provided nearly $6 trillion in pandemic relief, following the 3.4% drop in 2020, which was the biggest drop in 74 years.
The increase in real GDP for 2021 primarily reflected increases in PCE, nonresidential fixed investment, exports, residential fixed investment, and private inventory investment, the BEA said.
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In addition, real gross domestic income (GDI) increased 5.1% in the fourth quarter, compared with an increase of 6.4% in the third quarter. Corporate profits increased $20.4 billion in the fourth quarter, significantly down from the $96.9 billion increase in the third quarter.