Why economists believe 2021 ended on a high note despite Omicron

At least that is what economists are hoping.

Omicron prompted infections to skyrocket, companies to battle and employees to remain house sick in late December. But earlier than the variant arrived on US shores, the restoration was chugging alongside.

That means the fourth quarter might show to be the one which squeaked via, slotting between Delta and Omicron — and searching fairly good.

Economists predict US gross home product, the broadest measure of financial exercise, grew at an annual price of 5.5% between October and November, in accordance with consensus estimates from Refinitiv.

The GDPNow forecast from the Federal Reserve Bank of Atlanta factors at development of 5.1% as of January 19, nonetheless a strong quantity though it is a far cry from the greater than 7% bump forecast in late December.
Either approach, it could be a large uptick from the 2.3% annualized growth rate reported within the third quarter, when the Delta variant weighed on the economic system. But it could nonetheless be beneath the second quarter’s 6.7% rate — earlier than the variants threw a wrench into our lengthy awaited return to regular.

By distinction, the primary three months of 2022 might replicate among the worst financial development for the reason that 2020 lockdowns.

“In terms of growth momentum, January is on track to be the worst month since December 2021,” stated Jefferies chief economist Aneta Markowska. “We have penciled in a 1.5% growth rate for Q1 GDP,” she stated.

Rising inflation and early vacation buying

Just as a result of the economic system might have gotten fortunate within the ultimate quarter of the yr does not imply it was devoid of issues.

US customers, the spine of the economic system, had loads to grapple with.

Supply chain issues, employee shortages, growing transportation prices and high demand are conserving inflation uncomfortably high. And the ultimate months of the yr have been no exception when it comes to worth will increase.
In the 12 months ended in November, the private consumption expenditure worth index — the inflation gauge that is additionally included within the GDP report — rose to five.7%, its highest level since since July 1982.
Amid the rising prices, retailers warned that the vacation buying season could be plagued with delays, prompting buyers to purchase presents early and inflicting retail sales to drop in December for the primary time for the reason that summer season.

Higher costs — together with transport delays and Omicron’s arrival — weighed on how Americans have been feeling by year-end. And this sentiment continued into the brand new yr.

On Tuesday, client confidence knowledge revealed that Americans really feel okay in regards to the economic system proper now, with loads of jobs accessible and low rates of interest, regardless of Omicron. But the near-term outlook is way more unsure between rising rates of interest and the worry of extra potential Covid variants disrupting the restoration.