Key Takeaways:
- Total GDP at $19.8 trillion, above pre-pandemic levels
- Most of gains are attributed to business and housing investments
- Healthcare is the top category for consumer expenditures, with housing close behind
By Manuel Gutierrez, Consulting Economist to NKBA
The economy bounced back in the fourth quarter with a healthy gain of 6.9 percent. This is the fastest growth since the third quarter of 2020 when GDP jumped nearly 34 percent, partly recouping the losses of the two previous, quarters caused by the pandemic’s onset. Excluding that third quarter growth, the fourth quarter of last year registered the fastest growth rate in forty years. However, despite the gains made recently, the economy is still recovering from the damage caused by the pandemic shutdown.
Total GDP reached $19.8 trillion in the fourth quarter, $605 billion above the pre-pandemic level at the end of 2019. However, it is still over $600 billion below where it should be today, were it not for the damage caused by the shutdown.
The bulk of the fourth quarter’s gains are attributed to investment, both from businesses and housing investment made by households,accounting for three-quarters of the 6.9 percent growth Paradoxically, the bulk of investment growth was an increase in business inventories. Potentially based on the supply-chain problems, the inventory increase could be works in progress, not yet complete products ready to be shipped. The other possibility is that businesses cannot expeditiously ship all the product they are making.
GDP grew by nearly 7 percent in Q4 2021, the fastest growth in five quarters.
The second largest contributor to growth was U.S. exports of goods and services, adding 2.4 points to the total. Imports showed negative growth of the same amount, with the two cancelling each other out. Consumers, who traditionally contribute the most to growth, added only 2.25 points to the total.
The latest GDP data shows Health Care capturing the highest total of consumer dollars, accounting for 16.3 percent spent in the fourth quarter.
Housing costs, including rent, the assumed cost of homeownership and utilities, is close behind, at15.6 percent. Food and beverages, including that which is brought into the house as well as consumed in restaurants and bars, accounted for a combined 14.2 percent. Consumers spent 9.2 percent of their income for recreation, 6 percent of which was for recreational goods, and 3.2 percent for recreation services.
Note that this data differs sharply from retail sales data released on a monthly basis. The latter is based on the type of retail store, rather than the individual product. All purchases made at retail stores are not necessarily for consumers. Some of them are for business use. Also, stores are classified in categories according to the majority of their sales. For instance, home improvement stores like Home Depot may be classified as building products stores, while they also sell household appliances and other goods that do not strictly fall under the building products rubric.
The GDP data discussed here reflect estimated spending by consumers for their own use. Total consumer spending has grown 6.4 percent since the first quarter of 2020, which was partially impacted by the pandemic shutdown. Spending in the fastest growing category, Other Durables, is up 40.6 percent over the last two years (Figure 4). This group includes a diverse group of products such as garden equipment, which is not classified elsewhere.
Recreation Goods is the second fastest mover, with spending that is 36.5 percent higher than in the first quarter of 2020. Clothing, a category for which there was little use during the strictest months of the shutdown, is the third fastest growing at 32.7 percent.
At the bottom of Figure 4 are two categories for which spending have not yet recovered to pre-pandemic levels. They are Transportation Services, such as air travel, which is down 1.1 percent, and Recreation Services, such as theme parks or cruises, which is still off by 3 percent from the first quarter of 2020.
