The US economy grew faster than forecast in the three months to December and for 2021 as a whole, but that failed to hold the attention of Wall Street investors who turned their back on the first estimate of US GDP and continued to sell.
Boosted by consumer spending, growth was well ahead of most forecasts, but in reality it is ancient history coming before disruptions from the Omicron variant of coronavirus hit in late December and continued into early 2022.
Quarter-on-quarter growth was 1.7% with sizeable boosts coming from inventories and consumer spending.
Wall Street at first rose on the news, but then with around two hours to go in the session, turned down and resumed selling techs in particular as investors fretted about the impact of coming rate rises from the Fed.
The Dow closed little changed at 34,160.78 (down 7 points) after being up more than 600 points at its highs. The S&P 500 eased half a per cent to 4,326.51, and the Nasdaq fell 1.4% to 13,352.78. Both indexes traded in positive territory earlier in the session after the GDP data was released.
Despite the wild intraday movements, the Dow is down just 0.3% on the week, while the S&P 500 is off by 1.6% and the Nasdaq is 3% lower.
All this left the ASX 200 showing a 101-point gain, so will that hold Friday? After trading this week, we can’t be certain.
Those prospective rate rises are what Wall Street and many analysts have demanded happen to control rising inflation, but when Fed chair Jay Powell made it clear he was open to as many increases as it took to control inflation, the same investors and traders took fright and sold.
Gold slid more than $US30 an ounce to be down around $US50 an ounce in two sessions. The metal was trading around $US1,794 an ounce this morning in Asia. US 10-year Treasury yields remained above 1.80% and the Aussie dollar sold off, falling to around 70.30 US cents.
The December quarter’s increase was well above the unrevised annual growth figure of 2.3% in the third quarter and came despite a surge in Covid omicron cases that likely slowed hiring and output as businesses dealt with large numbers of sick workers.
Gains came from increases in private inventory investment, strong consumer activity as reflected in personal consumption expenditures, exports, and business spending as measured by non-residential fixed investment.
Across-the-board falls in the pace of government spending subtracted from GDP, as did imports.
Growth through the year was 5.7%, the strongest pace since 1984. While China’s 8.1% for 2021 was stronger than America’s, the US 4th quarter rate of 1.7% was ahead of China’s 1.6%.
Consumer activity, which accounts for more than two-thirds of GDP, rose 3.3% for the quarter. Gross private domestic investment, a measure of business spending and inventory build, soared 32% amid continuing supply chain problems.
Inventories added 4.9 percentage points to the headline growth, boosted in particular by motor vehicle dealers as dealers rebuilt stocks reduced earlier in the year by weak production and component (computer chip) shortages.
Economic growth came as inflation surged in the second half of the year, as supply couldn’t keep up with strong demand, particularly for goods over services.
The U.S. heads into 2022 on uncertain footing, with Fed Chairman Jerome Powell warning Wednesday that growth in the early part of the year is slowing, though he views the economy overall as strong.
