Somehow the economy grew last year at the fastest pace since 1984: NPR
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Last year saw the fastest economic growth since Ronald Reagan was president. But for many people, 2021 felt less like “Morning in America” and more like a restless night plagued by restless dreams about the ongoing pandemic.
The Commerce Department reported on Thursday that the country’s gross domestic product rose 5.7% last year – the biggest increase since 1984. But growth has come in spurts, with hopes of a recovery regularly wiped out repeatedly by successive waves of infection.
And now, uncertainty lingers in the coming year as the omicron variant continues to spread. Meanwhile, the Federal Reserve is preparing to raise interest rates, perhaps aggressively, in an effort to combat stubbornly high inflation.
“It wasn’t a straight line for the economy last year, that’s for sure,” said Mark Zandi, chief economist at Moody’s Analytics. “The economy remains linked to the pandemic.”
Business boomed in the spring and early summer last year as millions of Americans got vaccinated and felt free to travel and dine out more. In June and July alone, employers added more than 2 million jobs, almost a third of the year’s total job gains.
But growth slowed when the delta variant hit.
“It was crazy. It was a roller coaster,” says Dave Krick, owner of three restaurants in Boise, Idaho.
Krick had high hopes for the end of the year, after a busy October, and he planned to resume hosting private parties at his restaurants, only to pull the plug when the infection rate started to climb again skyrocketing as the omicron variant began to spread. .
“It was a teaser. We thought the holiday season was going to be really good,” Krick said. “These end-of-year parties are a big part of the success of the year for us. And we have canceled practically everything.”
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An economic blow – and a groan
The Commerce Department said GDP grew at an annual rate of 6.9% in the last three months of the year, driven in part by stronger exports and an accumulation of inventories.
But the fourth quarter was as uneven as the previous nine months.
“Q4 started with a bang and ended with a whimper,” said Zandi. “October was a fantastic month for the economy – consumer spending, investment – everything was running at full steam. And then in December, omicron came on the scene quickly and did a lot of damage.”
While unemployment fell to just 3.9% – the lowest level since the start of the pandemic – employers added just 199,000 jobs in December.
And forecasters expect this weakness to continue into the new year.
Early jobless claims in recent weeks suggest some employers are cutting jobs in response to the omicron wave.
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Even though last year’s economic growth was the strongest in decades, it fell short of what economists had originally hoped. Early last year, some forecasters believed the combination of widespread vaccinations and pent-up demand would fuel an even stronger boom, with GDP growth of up to 7%.
“There were just too many people who weren’t vaccinated,” Zandi said. “It’s admirable how well the economy has held up, despite the fact that vaccines haven’t exactly solved the problem.”
Pandemic-related supply chain issues and labor shortages have weighed on economic growth, while driving up prices.
“Even though we had a lot of demand, we weren’t able to do as much as we hoped,” said Krick, the restaurant’s owner.
Its labor costs have risen sharply this year, thanks to higher wages and new health benefits. Restaurant food costs are also on the rise.
“Our supply chains don’t like this roller coaster,” Krick said. “We have a hard time predicting what we’re going to get and not get, so we have to adjust quickly with the menus and that takes a lot of time and energy. And the costs are really tough.”
National restaurant meal prices were 6% higher in December than a year ago, while headline inflation hit 7% – the highest level since 1982.
Will 2022 be better?
The new year will likely continue to be marked by the path of the pandemic – as well as the fight against inflation.
The Federal Reserve signaled on Wednesday that it plans to start raising interest rates at its next meeting in March, in a bid to contain prices, and markets are expecting three more rate hikes over the course of the year.
The challenge for the central bank is not to brake too hard and slow the economy too much – a tricky feat given that some economists believe the central bank has waited too long to fight inflation.
“We expect some slowdown in the omicron economy, but we think that should be temporary,” Fed Chairman Jerome Powell told reporters. “We think the underlying strength in the economy should show up fairly quickly thereafter.”
Zandi said he was confident that the central bank could gradually withdraw its easy money policies without blocking the recovery.
“I think they will be able to do that and land the economy plane on the tarmac,” he said. “It might be a little bumpy here. There’s a lot of headwinds in the economy.”
Most of the federal relief programs that pumped trillions into people’s pockets during the pandemic have also expired, though restaurants are asking Congress for more help.
Zandi thinks the economy will continue to grow in 2022, but at a slower pace of around 4%.
“We are all striving to better navigate the virus and learn to live with and manage it,” Zandi said. “I hope we have another good year in 2022.”
Krick also hopes business will continue to rebound, but he makes no firm predictions about the year ahead.
“One thing we know right now is that we don’t know what 2022 is going to bring us,” he said. “We are losing a lot of money hoping that this spring and summer will be better, mainly because we have no choice. It’s a strange time to run a restaurant.”