PREVIEW: What to Look for In the Fourth Quarter 2021 GDP Report

January 25, 2022

Gross Domestic Product (GDP), Fourth Quarter 2021 (Advance Estimate) is scheduled for release by the Bureau of Economic Analysis on Thursday, January 27, 2022, at 8:30 AM Eastern Time.

GDP growth for the fourth quarter should bounce back from the 2.3 percent figure from the third quarter, likely coming in at close to 5.0 percent. This growth will be largely driven by high single-digit growth in investment and housing, along with strong consumption growth. Inflation is likely to be high for the quarter, with the personal consumption expenditure deflator coming in well above the Fed’s 2 percent target.

Saving Rate Likely to Remain Near Pre-Pandemic Average

One of the key areas of uncertainty about the economy in 2022 is whether households will spend down the money they accumulated during the pandemic as a result of the pandemic checks and being unable to do things like traveling and going to restaurants. A sharp drop in the saving rate would be consistent with the view that we had overstimulated the economy with the American Recovery Act and are likely to face serious problems with inflation going forward.

The saving rate averaged 7.5 percent in the three years prior to the pandemic. It is likely to be somewhat over 7.0 percent in the fourth quarter.

If that proves to be the case, it would indicate that people are not spending down their savings to any substantial extent. The gap between the 7.5 percent pre-pandemic saving rate and anything over 7.0 percent in the fourth quarter would not be very large. Furthermore, saving rates are almost always revised upward, so the revisions are likely to leave the saving rate very close to the pre-pandemic average. By contrast, in the years before the collapse of the housing bubble, the saving rate was close to 3.0 percent.

Consumption Growth Likely to Remain Strong

We are likely to see a good but not exceptional quarter for consumption growth, with the figure in the 4.0–5.0 percent range. Durable goods consumption is likely to show the largest increase, bouncing back from a supply chain-driven decline in the third quarter. Consumption of nondurable goods will be close to flat, with weak growth in demand for food and clothes. Consumption of services should show strong growth, as spending in restaurants and other types of services continued to bounce back.

We are still some distance from the pre-pandemic mix of goods and services consumption, but we will be getting closer with the fourth quarter GDP. However, it is worth noting that demand for some services, specifically those connected with commuting, will likely not return to pre-pandemic levels due to the increase in the number of people working from home.

Investment Growth Should be in the High Single Digits

Nonresidential investment has been depressed by the fall in investment in nonresidential structures, as working from home has reduced the need for office space and increased online shopping has reduced the demand for retail space. That has likely bottomed out, with nonresidential construction likely showing small increases in the quarter. Investment in equipment and intellectual products should both show healthy gains. The drop in investment during the pandemic recession was very limited and we should be close to the pre-pandemic trend with the fourth quarter numbers.


Residential construction fell in the third quarter, likely in large part due to supply chain issues impeding construction. There was a healthy pick-up in housing starts in the fourth quarter, although it is a safe bet that supply chain problems are again restraining construction. The net story is that residential construction is likely to be above the third quarter levels, but the increase will be modest. We will almost certainly see more rapid growth in housing in 2022 when the supply chain problems lessen.

Trade Deficit

The rise in the trade deficit was a major drag on growth in the third quarter, knocking 1.26 percentage points off of the quarter’s growth rate. There is likely to be little change in the deficit this quarter, which means it will have little impact on growth. This may switch to a small positive in future quarters, with slower US growth likely putting us closer to the pace of our main trading partners.


Fluctuations in Inventories have been a big factor in GDP growth in recent quarters, with inventories actually declining in the last three quarters. It is likely that inventories may show a small positive in the fourth quarter, even though it is likely they will still be shrinking, albeit by a smaller amount than in the third quarter.

Government Spending

Government spending was a small net positive in the third quarter, as the impact of higher state and local spending more than offset the drag from a drop in nondefense federal spending. In the fourth quarter we will likely again see modest growth in state and local spending, but without a drop in federal spending. As a result, the sector will make a somewhat stronger contribution to growth in the quarter.

Growth and Inflation

This will likely be the last quarter of extraordinary growth recovering from the pandemic downturn. We should be seeing more normal growth rates in 2022. The spread of the omicron variant was not likely a major factor in the fourth quarter, as its growth was not substantial until the last weeks of the quarter.

We may see some effect in the current quarter, although more in disrupting supply chains than in directly affecting business. The biggest issue going forward is whether supply chain problems can be brought under control, reversing price rises in many areas.

CEPR produces same-day analyses of government data on inflation, employment, GDP and other topics. Follow @DeanBaker13 on Twitter to get his quick-take analysis of government data immediately upon release.

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