US economic growth accelerated in the fourth quarter; corporate profits slow

GDP grew at a 6.9% annual rate, the Commerce Department said in its third estimate of fourth-quarter GDP growth. This was revised down to slightly less than the 7.0% pace projected in February.

The economy grew at 2.3% in the third quarter. Growth is 3.1% higher than its pre-pandemic level. Economists polled by Reuters had expected GDP growth to moderate to 7.1%. The revision in fourth quarter GDP readings reflected a deceleration in consumer spending and export growth.

For all of 2021, the economy grew 5.7%, the strongest since 1984, after the government provided nearly $6 trillion in pandemic relief. It contracted 3.4% in 2020, the biggest drop in 74 years.

But it’s all in the rear-view mirror. An onslaught of coronavirus infections contributed to spending cuts as well as disrupting activities at factories and services businesses at the start of the year. While infections have declined dramatically, leading to the lifting of restrictions across the country, inflation is rising as supply chains stretch.

The Federal Reserve raised its policy interest rate by 25 basis points this month, the first hike in more than three years, and signaled an aggressive stance that has left the bond market fearing a recession down the road. The widely tracked US 2-year/10-year Treasury briefly turned upside down on Tuesday for the first time since September 2019.

But economists said the Fed’s largely treasury and mortgage-backed securities made it difficult to read clearly from yield curve moves.

“This is potentially putting further downward pressure on longer-term rates, and it may only be once the balance sheet starts to shrink, likely in June, that we will have a better idea of ​​what that means.” How much this could reduce long-term yields,” said Andrew Hollenhorst, chief US economist at Citigroup in New York.

Economists expect this expansion to continue, with tight labor markets and massive savings to support households against high inflation.

Corporate profit growth slowed significantly in the fourth quarter as domestic financial corporations faced shortfalls. Profits from domestic non-financial corporations and from the rest of the world also increased marginally.

Corporate profit with inventory valuation and capital consumption adjustments grew at a rate of $20.4 billion in the fourth quarter after growing at a pace of $96.9 billion in the third quarter. (Reporting by Lucia Muticani; Editing by Andrea Ricci)