GDP: Inventory Rebuild Will Boost Growth This Year

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Inventory rebuilding contributed all but 2 percentage points of the strong 6.9% GDP growth in the fourth quarter. Inventory levels are still more than $300 billion below prepandemic levels, and continued rebuilding will contribute at least half of 2022’s expected growth rate of 4.0%. Motor vehicle dealer inventories are still $68 billion below normal, and these will be built up rapidly when manufacturers can get the computer chips they need to complete the electronics in their new cars and trucks.

Consumers are still maintaining a high level of spending. But an expected easing of the pandemic this year will cause a shift in that spending from goods to services, which will help retailers to catch up on their inventories. Both exports and imports boomed in the fourth quarter, as continued strength in the goods trade caused strains in international ocean freight.

Commercial and other construction is still struggling, except for oil and gas structures. It is hoped that an easing of the pandemic will lead to workers returning to office space and increased use of other types of facilities, but a portion of the workforce is likely to work from home for some time.

GDP will likely grow by 4.0% next year, after rising 5.6% in 2021. Consumers will pull back some spending because of price concerns. Lower-income households will be most affected by higher prices. The car and truck shortage will last well into this year, keeping vehicle prices high. Gasoline prices are likely to stay up. Inflation pressures in general will stay elevated because of supply issues. However, consumers have saved an average of $21,000 per household more than usual since the start of the pandemic, so they will continue to spend when supply shortages are corrected.

Corporate profit margins hit a record 12.7% of GDP in Q3 2021. However, while revenue growth will continue strongly, higher labor and shipping costs will cut into profits this year to some extent.

Source: Department of Commerce: GDP Data