Surprise, surprise, the latest data show that the Omicron variant has done little damage to economic growth.
The latest predictions for fourth quarter growth are 5-6 percent, more than making up for the 2.3 percent Q3 slowdown, as effects from Omicron’s infection rate wane.
The Atlanta Fed just announced that its Q4 GPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 5.1 percent on January 19, up from 5.0 percent on January 14. This is the most up to date prediction.
They attributed the growth adjustment to “…this morning’s housing starts report from the US Census Bureau (a very large increase).”
Privately‐owned housing starts in December were at a seasonally adjusted annual rate of 1,702,000, said the Census Bureau. This is 1.4 percent above the revised November estimate of 1,678,000 and is 2.5 percent (±13.8 percent) * above the December 2020 rate of 1,661,000.
As many as 1,800,000 units were authorized at the height of the housing bubble in 2006. And an estimated 1,724,700 housing units were authorized by building permits in 2021, close to the 2006 high, which was 17.2 percent (±0.6 percent) above the 2020 figure of 1,471,100. So, builders are racing to catch up to the soaring demand for housing, which is already boosting economic growth
And the Conference Board Index of Leading Economic Indicators (LEI), made up of 10 economic indicators such as interest rate trends, building permits and manufacturing new orders that purports to predict growth six months ahead, rose 0.8 percent, also a very large number.
“The U.S. LEI ended 2021 on a rising trajectory, suggesting the economy will continue to expand well into the spring,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “For the first quarter, headwinds from the Omicron variant, labor shortages, and inflationary pressures—as well as the Federal Reserve’s expected interest rate hikes—may moderate economic growth.”
Where is that moderation most expected? Nobel Laureate Paul Krugman has pointed out several times that red states have lower vaccination rates than in the blue states, where Omicron infection rates are highest among the unvaccinated. It’s Republicans wanting to oppose anything the Biden administration is doing. And in doing so, it will cost more lives and slower job growth among their own constituents.
However, the need to vanquish COVID-19; or at least tame it so that it acts more like a seasonal flu; has united enough Americans to put money where it will do the most good—into infrastructure and family pocketbooks, rather than speculators’ pockets, as was happening before the pandemic.
That said, the $trillions in pandemic aid should mitigate concerns that higher inflation, or the Omicron variant will do much harm to consumers and economic growth in most states. The current inflation numbers are a sign of robust growth, so let’s get everyone vaccinated and the supply chains unclogged.
Harlan Green © 2021
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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