US GDP skyrocketed 5.7% in 2021, highest yearly economic growth since 1984

According to Gross Domestic Product numbers released by the Commerce Department Thursday, the United States saw its highest year-to-year economic growth since 1984 in 2021. The country’s GDP rose 5.7% in 2021, including a 6.9% annual rate of growth in the fourth quarter of 2021.

“The increase in real GDP primarily reflected increases in private inventory investment, exports, personal consumption expenditures (PCE), and nonresidential fixed investment that were partly offset by decreases in both federal and state and local government spending,” the Commerce Department wrote. “The decrease in federal government spending primarily reflected a decrease in defense spending on intermediate goods and services. The decrease in state and local government spending reflected decreases in consumption expenditures (led by compensation of state and local government employees, notably education) and in gross investment (led by new educational structures).”

Growth last year was driven up by a 7.9% surge in consumer spending and a 9.5% increase in private investment. While fourth quarter consumer spending rose at a more muted 3.3% annual pace, private investment rocketed 32% higher. Meanwhile, a surge in business inventories as companies stocked up to meet higher customer demand accounted for 71% of the fourth-quarter growth.

The rapid economic growth seen in 2021 is expected to slow in 2022. The short term economic outlook has already been hampered by the ongoing surge in COVID-19 cases fueled by the Omicron variant. Many businesses remain under pressure as millions of people continue to avoid crowds. Without pandemic-related government aid to households, consumer spending may slow down.

The expected slowdown in economic growth from 2021 is expected to last throughout this year. The International Monetary Fund has forecast the nation’s GDP growth will slow to 4% for 2022.

On Wednesday, the Federal Reserve further emphasized that it plans to raise interest rates multiple times this year to battle record inflation that has persisted for months. Those rate increases will make borrowing more expensive, which could also slow economic growth this year compared to 2021.