US economic growth accelerated in fourth quarter ahead of Omicron

US economic growth accelerated more quickly than expected in the final quarter of 2021, boosted by consumer spending before disruptions from the Omicron variant of coronavirus hit.

US gross domestic product expanded 6.9 per cent on an annualised basis in the fourth quarter, up from 2.3 per cent growth in the third quarter, the commerce department said on Thursday. That topped economists’ forecast for a 5.5 per cent advance, according to a Reuters poll.

GDP rose 1.7 per cent compared with the previous quarter, based on a measure used by other major economies.

Despite disappointing December retail sales data, consumer spending helped support economic growth, as Americans did their holiday shopping early amid concerns that supply chain snarls could lead to bare store shelves. Personal consumption rose 3.3 per cent in the fourth quarter, following a more modest 2 per cent rise the previous quarter.

“The increase in real GDP primarily reflected increases in private inventory investment, exports, personal consumption expenditures, and nonresidential fixed investment,” the commerce department said.

Economists have cautioned that the wave of Covid-19 infections sparked by Omicron will deliver a sharp but shortlived hit to economic activity at the start of 2022. Americans cut back on dining out and air travel, while plans for workers to return to their offices were delayed, which affected spending in commercial areas.

The IMF this week cautioned that the global economic recovery from the pandemic will face multiple hurdles. It slashed its forecast for US economic growth this year to 4 per cent, down from 5.2 per cent in its October outlook.

Federal Reserve chair Jay Powell on Wednesday said he expects some softening in the economy from the Omicron wave that began to ripple across the US in late December, but that the effects would be temporary.

The Fed has looked past Omicron concerns and signalled its intention to raise interest rates in March as it pushes ahead with plans to tighten monetary policy and quash stubbornly high inflation.

With markets pencilling in four rate rises and balance sheet run-off this year, concerns have grown that aggressive tightening could take some steam out of the economy. But James Knightley, chief international economist at ING, said “it could actually boost confidence in that they are getting a grip as inflation is a real concern for households and businesses”.