Last year, the American economy advanced at its fastest rate in almost a decade, bouncing back from the short but damaging coronavirus slump with power.
In 2021, the country's GDP — the total amount of goods and services produced — increased 5.7 percent. It was the largest annual increase since a 7.2 percent surge in 1984, following a previous recession. Moreover, the economy accelerated even faster in the fourth quarter, reaching a 6.9% annual growth rate from October through December, according to the Commerce Department.
The economy is projected to expand at a slower pace in 2022 owing to persistent inflation and COVID-19 caseloads, though it will still grow. Because of the effects of the omicron variant, many economists have lowered their expectations for the current January-March quarter. In addition, for the remainder of 2022, the International Monetary Fund predicts that Canada's GDP growth will slow to 4%.
The omicron variant, which has kept millions of people hunkered down at home to avoid lines, is still wreaking havoc on many US firms, particularly restaurants, bars, hotels, and entertainment attractions. Furthermore, the loss of government assistance to households that fostered activity in 2020 and 2021 but has now expired may further stifle consumer spending this year.
Additionally, the Federal Reserve announced Wednesday that it will raise interest rates multiple times this year in an attempt to combat the longest inflation run-up since the 1970s. Those rate hikes would, consequently, make borrowing more costly and perhaps slow down economic growth this year.
Last year's expansion was aided by a 7.9% rise in consumer spending and a 9.5% increase in private investment. In the final quarter of this year, consumer expenditure increased at a slower 3.3% annual rate. Private investment, on the other hand, soared 32% higher. In a statement, President Joe Biden said:
“We are finally building an American economy for the 21st century, with the fastest economic growth in nearly four decades, along with the greatest year of job growth in American history."
A healthy rebound had been expected for 2021, as a result of the 2020 pandemic recession. GDP fell 3.4% in 2020, the largest full-year drop since an 11.6% decline in 1946, when America was demobilizing after World War II. The COVID epidemic in March 2020 prompted authorities to impose lockdowns and businesses to immediately shut down or reduce operations. Employers eliminated a staggering 22 million positions due on the economy's collapse. As a result, the economy entered into a severe recession.
But low interest rates, substantial injections of government assistance — including $1,400 payments to most households and, eventually, the widespread use of vaccines — revived the economy. Therefore, many customers regained their confidence and financial stability to go out and spend again.
The resurgence in demand was so strong that it caught businesses by surprise. For instance, many businesses had difficulty finding enough supplies and employees to meet a sudden burst of client demands. With so many people now working from home, shortages of goods purchased for homes—from appliances to sports goods to electronic gadgets—became especially acute. Additionally, because computer chips were in short supply, automobile dealers were left desperately lacking in cars.
Factories, ports, and freight depots were overwhelmed, causing supply chains to become tangled. Inflation began to surge rapidly. Furthermore, over the previous year, prices have gone up by 7%, which is the most rapidly yearly inflation since 1982. Food, energy, and automobile costs were among those that skyrocketed in cost.
The economy has been experiencing signs of wear and tear for some time now. For example, retail sales dropped 1.9% in December of last year. The Institute for Supply Management's manufacturing index hit a low in December, suggesting that production slowed to its lowest level in eleven months.