America’s Bureau of Economic Analysis (BEA) is reporting that the domestic economy grew by 6.9 per cent in the fourth quarter of 2021.

The growth for the third quarter was 2.3 per cent. The BEA says “the growth in real gross domestic product (GDP) was driven mostly by gains in private inventory investment, exports, personal consumption expenditures (PCE) and nonresidential fixed investment.”

These were offset by losses in federal, state, and local government spending. Imports increased, which is a subtraction in the computation of GDP. The fourth-quarter GDP increase reflects the ongoing economic impact of the COVID-19 pandemic.

According to the BEA, “COVID-19 cases resulted in continuous restrictions and disruptions in the operations of businesses in several parts of the country throughout the fourth quarter. As elements of numerous federal programs expired or tapered off, government aid payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all declined.”

Full impact of the COVID-19 yet-to-be-measured in Q4

The full economic impact of the COVID-19 pandemic cannot be measured in the fourth-quarter GDP estimate because the repercussions are often contained in source data and cannot be detected separately. However, retail and wholesale trade industries drove the increase in private inventory investment.

Motor vehicle dealers were the largest contributors to retail inventory investment. The increase in exports mirrored increases in both products and services.

The surge in goods exports was widespread, with consumer products, industrial supplies and materials, and foods, feeds, and beverages leading the way. Travel was the driving force behind the increase in service exports.

The increase in PCE indicated mostly an increase in services, led by health care, recreation, and transportation. The increase in nonresidential fixed investment was mostly due to an increase in intellectual property products, which was partly offset by a decrease in structures.

Decline in federal spending

The decrease in federal government spending was mostly due to a reduction in defence spending on intermediate goods and services. The decrease in state and local government spending reflected decreases in consumer expenditures.

This was driven by state and local government employee compensation, particularly education as well as gross investment, led by new educational structures. The increase in imports was mostly due to an increase in goods, led by non-food and non-automotive consumer goods, as well as capital goods.

After gaining 2.3 per cent in the third quarter, real GDP increased 6.9 per cent in the fourth quarter. The fourth-quarter acceleration in real GDP was primarily due to an increase in exports, accelerations in private inventory investment and PCE, and smaller falls in residential fixed investment and federal government spending.

This was partially offset by a decrease in state and local government spending. Imports have increased. In the fourth quarter, current-dollar GDP increased 14.3 per cent year-on-year, or $790.1 billion, to a level of $23.99 trillion.

GDP increased by 8.4 per cent, or $461.3 billion, in the third quarter. Real GDP increased in 2021 as a result of increases in all main subcomponents, led by PCE, nonresidential fixed investment, exports, residential fixed investment, and private inventory investment.

In 2021, current-dollar GDP increased by 10.0 per cent, or $2.10 trillion to $22.99 trillion, compared to 2.2 per cent, or $478.9 billion in 2020.