What is the real rate of growth? GDP growth rebounded in the 4th quarter of 2021. After slowing to 2.3 percent in the third quarter, the initial reading for 4th quarter is 6.9 percent. Does that mean we are back to the solid growth of earlier this year? It doesn’t feel that way.
While 6.9 percent seems like healthy growth, we must factor in that inflation is 7 percent. Also, when you average the 2.3 percent and 6.9 percent, the second half grew at 4.6 percent versus over 6 for the first half. Is it any wonder that people do not feel as if the economy is doing well?
Factor into that 6.9 percent growth the fact that more than 4 percent of that was inventory-building, and the picture becomes a little bleaker. Most of the activity last quarter was simply companies getting their supply chains sorted.
This puts the market in a quandary. Earnings will be strong, at least in nominal terms, while real growth continues to slow. In the long term company earnings should win out, but in the short haul, markets are likely to be choppy.
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