U.S. ECONOMIC GROWTH SPIKES, BEATING FORECASTS

The U.S. economy grew 6.9 percent in last year’s fourth quarter compared to the same period a year earlier, the strongest quarter in more than a year and far ahead of analysts’ predictions, which averaged 5.5 percent.
The growth rate tripled the previous quarter’s pace of 2.3 percent.
The Personal Consumption Expenditures Price Index (PCE), the U.S. Federal Reserve’s favorite measure of inflation, grew by 5.8 percent for the period, lagging the economy’s expansion.
Excluding food and fuel costs, the PCE was up 4.9 percent year on year.
Beyond consumers’ holiday spending, much of the growth was attributed to companies beginning to rebuild inventories after a year of shortages. That increase in demand should, in turn, energize manufacturing, analysts told Bloomberg.
Companies could restock, in part, because consumers reined in spending, which grew 3.3 percent for the period, a modest bump from the third quarter’s 2 percent and about the rate analysts had expected.
However, some of that new extra inventory may be the result of December holiday goods arriving too late for the season, thanks to snarled supply chains, analysts cited by Bloomberg pointed out.
The fourth-quarter surge helped propel the U.S. GDP to a 5.7-percent growth in 2021, adjusted for inflation, the best pace since 1984.
Consumer spending soared 7.9 percent in 2021, the most since 1946 immediately after World War Two ended.
The economy overall grew faster in 2021 than at any time since September 1984, when inflation was slowing and the U.S. was recovering from back-to-back recessions.
However, dangers lurk beneath the positive numbers, the WSJ noted.
A significant share of last quarter’s economic activity was due to companies restocking their inventories, not to all-important consumer and business spending.  
Factoring out the “inventory effect,” spending grew by only 1.9 percent in the quarter, the WSJ said.
“The 6.9 percent figure is probably a bit overly optimistic assessment of the underlying strength of demand,” Andrew Hunter, Capital Economics’ chief U.S. economist, told the WSJ.
“It’s increasingly the case that the economy is essentially at, or rapidly approaching, the capacity-constrained level,” he said.
Also, while U.S. productivity now exceeds pre-COVID levels, businesses are doing more with fewer workers; about 3.6 million more workers, or 2.3 percent of 2019’s labor force, are off the job now compared to February 2020.
TREND FORECAST: The faster and higher interest rates rise, the faster and deeper the economy will decline. 
As we have continually detailed, the last two years of the economy were powered by the torrents of cheap and free money in the name of rock-bottom borrowing costs and unprecedented flows of federal stimulus gifts to households.
Now, much of that money is spent and the high saving rates have rapidly declined. In fact, according to the Bureau of Economic Analysis (BEA) the personal savings rate declined 22.3-percentage-point plummet from an all-time high in April, 2020 and is near its pre-COVID War levels.