[Asia Economy Reporter Seulgina Jo, New York=Correspondent Jongmin Baek] Soaring inflation and the spread of COVID-19 failed to dampen year-end special demand expectations. Ahead of the Christmas season, key economic indicators representing consumer sentiment in the U.S. rose in tandem, brightening the economic outlook for the fourth quarter. With the feared supply crisis significantly easing, the U.S. economy is expected to grow at an annual rate of 5.6% this year. However, the key issue lies in next year. Concerns are mounting that the rapid spread of the new COVID-19 variant Omicron will hamper economic growth in 2022.
◆ Clear Improvement in Consumer Sentiment... Biden: "No Crisis as Feared"
The Conference Board, a U.S. nonprofit private economic research institute, announced on the 22nd (local time) that the Consumer Confidence Index rose slightly to 115.8 from 111.9 (adjusted) the previous month. This far exceeded market expectations of 110.0. The Consumer Confidence Index is one of the main economic indicators that gauge consumer sentiment in the U.S.
The Consumer Expectations Index, based on short-term outlook, also rose from 90.20 (adjusted) in November to 96.90 in December. The proportion of those expecting improved business conditions increased from 25.6% to 26.7%, while those anticipating job losses sharply decreased from 19.0% to 14.8%. The number of consumers planning to purchase homes, cars, major appliances, or travel in the next six months also increased.
Lin Franco, Senior Director of Economic Indicators at the Conference Board, said, "This shows that the U.S. economy maintained momentum in December," adding, "Improved expectations for short-term growth have laid the foundation for continued growth into early 2022."
This improvement in consumer sentiment is interpreted as stemming from expectations for the traditional year-end peak season. Consumer spending accounts for as much as two-thirds of U.S. GDP. December is especially important as it accounts for one-quarter of U.S. retail sales. The Wall Street Journal (WSJ) reported, "Despite inflation and pandemic fears, American consumers remain optimistic about the economy."
Concerns over the logistics crisis initially feared ahead of the year-end peak have also been largely resolved. President Biden chaired the third supply chain meeting at the White House on the day, emphasizing, "The crisis we expected did not occur," and added, "Goods are moving, gifts are being delivered, and store shelves are not empty." He further noted that about 90% of grocery and drugstore shelves are stocked.
Considering that inventory shortages caused by global supply chain disruptions had dealt a direct blow to U.S. economic activity, this is cited as a factor that could accelerate economic recovery. Experts expect the growth rate this year to reach 5.6%, buoyed by the fourth-quarter year-end demand. On the same day, the U.S. Department of Commerce finalized the third-quarter GDP growth rate at 2.3%, 0.2 percentage points higher than the previously released preliminary figure. The personal consumption growth rate, which accounts for the largest share of U.S. economic activity, was revised upward from 1.7% to 2.0%.
◆ Troubling Omicron... Concerns for Next Year’s Outlook
The problem lies in next year. The spread of the new COVID-19 variant Omicron is already alarming. Consumer sentiment, which had recovered due to the year-end peak, could quickly freeze again. The Wall Street Journal (WSJ) pointed out that the recent Omicron spread may not have been fully reflected in the December Consumer Confidence Index. The December index remains lower than the early summer level before the Delta variant appeared.
The increased possibility of failure of President Biden’s ambitious ‘Build Back Better’ (BBB) Act is another negative factor for next year’s growth outlook. This $2 trillion social welfare budget bill faces uncertain passage after moderate Democrat Senator Joe Manchin recently expressed his withdrawal of support. The Senate is split 50-50 between parties, making it difficult for the bill to pass if even one member defects. Earlier, Goldman Sachs lowered its real GDP growth forecast for Q1 2022 from 3.0% to 2.0%, citing concerns over the BBB’s failure to pass.
In addition, inflation and supply chain disruptions remain economic uncertainties that the Biden administration must address. David Mericle, Chief Economist at Goldman Sachs, said, "The U.S. economy is expected to maintain a moderate recovery next year, but uncertainties such as Omicron, supply chains, and inflation will persist," adding, "The Federal Reserve is also expected to reduce asset purchases and raise interest rates to respond to inflation."
Christopher Rupkey, Chief Economist at New York FWD Bonds, said, "While consumers opening their wallets will make fourth-quarter growth dazzling, the spread of Omicron will make the economic path in 2022 more challenging."
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