MACRO: US economic growth quickened in Q4 mainly thanks to inventory boost

• GDP beat expectations, growing 6.9% in 4Q21
• Inventories accounted for the bulk of the increase in GDP growth
• PCE reading indicates that inflation continues to rise

The US economy expanded an annualized 6.9% in Q4 2021, much higher than 2.3% in Q3 and well above analysts’ estimates of 5.5%. 

Today's reading showed the strongest GDP growth in five quarters. Considering full 2021, the economy advanced 5.7%, the most since 1984. Source: Bloomberg via ZeroHedge

According to U.S. Bureau of Economic Analysis, personal consumption increased only 3.3%, pushed higher by a 4.7% surge in services spending, namely health care, recreation, and transportation. Fixed investment rebounded by 1.3%, residential investment however, continued to decline and was down 0.8%. Meanwhile, net trade made no contribution to growth as exports jumped 24.5% led by consumer goods, industrial supplies, foods, and travel; and imports went up 17.7%. . 

However the biggest upward contribution came from private inventories (4.9%), namely motor vehicle dealers as companies had been drawing down stocks since the beginning of 2021.

Inventories rose at a $173.5 billion rate, contributing 4.90% ts to GDP growth, the most since Q3 of 2020. Source: ZeroHedge

However this poses a risk, if restocking process reverses this may put additional pressure on private investment, net trade and government spending, which may in turn negatively affect GDP figure in the first quarter of 2022 especially if consumer spending decreases in the coming months.

Meanwhile Fed's favorite inflation indicator, Core PCE q/q increased 4.9% in 4Qfrom 4.6% in November and in line with expectations. Energy prices increased over 40.0% in Q4, while food prices rose 9.2%. Excluding food and energy, prices jumped 5.9% in Q4 after increasing 5.1% in Q3 which shows that inflation is still moving higher, which puts additional pressure on the central bank regarding the first interest rate hike.