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The US economy grew at an impressive pace in the closing quarter
of 2021, but a renewed period of weakness is already being
signalled at the start of 2022. Growth should pick up again as the
Omicron wave fades, but the degree to which growth can accelerate
is uncertain given various headwinds to the economy.
Faster GDP growth
US GDP grew in the fourth quarter of 2021 at an annualised rate
of 6.9%, up from 2.3% in the third quarter. (That translates into a
1.7% quarter-on-quarter gain after a 0.6% rise in the third
quarter). Barring the 33.8% surge seen in the third quarter of 2020
as the economy opened from the initial pandemic lockdowns, this was
the fastest rate of expansion since 2000. The strong end to 2021
also closes off the US's best year since 1984 and lifts GDP 3.1%
above its level reached just prior to the pandemic.
The upturn was broad-based, with solid expansions of both
consumer spending and business investment. Exports and inventories
also contributed to the impressive performance.
The expansion was also notable in occurring at a time of
persistent COVID-19 concerns and, as the Bureau of Economic
Analysis notes, fiscal tightening: "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."
Renewed weakness
The growth spurt has already faded, however, according to
flash PMI survey data from IHS Markit, which slumped lower in
January amid the Omicron wave. Sharply rising COVID-19 infections
led to a near-stalling of the economy in January according to the
survey responses, with rates of expansion close to stagnation in
both manufacturing and services.
Early official data on durable goods orders hint at a similar
slowdown, with orders down 0.9% in December.
Headwinds
The January weakness of the service sector is of little surprise
given record COVID-19 case numbers, but for the same reason is
likely to be short-lived. Business activity and consumer spending
in the sector should revive as virus case numbers recede in coming
weeks.
More uncertain is the path of manufacturing, where
still-widespread supply shortages and staff availability issues
continue to curb production in January, and look set to remain
drags for much of the rest of 2022 (see "
The Great Supply Chain Disruption: Why it continues in
2022".)
However, coming months could also see additional headwinds, in
the form of rising prices and a delayed impact of the tightening of
fiscal policy referred to above, as well as rising interest rates.
The Federal Reserve is taking an increasingly hawkish stance as to
the path of monetary policy tightening for 2022 in the face of a
recent surge in inflation, which has accelerated to 7.0%. While
signs of policymakers grappling with inflation may help steady
nerves about inflation getting out of control, it remains to be
seen whether financial markets and personal incomes will be
adversely affected. Recent survey data have already indicated than
investment professionals have become risk averse in 2022.
PMI data encompassing manufacturing and services activity, the
latter covering both consumers and businesses, will shed early
light on how the economic growth trend, employment and inflation
develops in the face of these headwinds.
Click here for more PMI commentary.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
