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subtracted an average 0.7 percentage points from GDP growth in the second half of 2021,
after being a 0.9% drag on growth in the first. Although growth of exports turned strongly
positive in the fourth quarter, the contribution was offset by a third quarter decline in
exports as well as strong domestic demand for foreign goods and services. The continued
rise in imports in the second half of 2021 was likely driven by inventory restocking and
continued strong domestic demand for foreign goods.
The labor market recovery was consistently solid throughout 2021, and the pace of job
creation picked up a bit during the latter half of the year. Payroll job creation averaged
534,000 per month during the first half of 2021, then accelerated somewhat to 590,000 per
month during the second half. By December 2021, a total of 6.7 million jobs had been
added over the year, and the unemployment rate had fallen to 3.9%, or 2.8 percentage
points lower than the December 2020 level, the fastest calendar year decline in the
unemployment rate on record. Improvement in the LFPR was slower than in payrolls or
the unemployment rate, but some progress was made by the end of 2021. The overall
LFPR was range-bound between 61.4% and 61.7% during the first half of last year, as a
sizeable 0.7 percentage point increase in the prime-age LFPR was offset by stable or
negative changes in LFPRs for non-prime age cohorts. However, total LFPR resumed
recovery in the last two months of 2021, rising to 61.9%—though still 1.5 percentage
points below the high of 63.4% in early 2020—driven in part by a 0.2 percentage point gain
in the prime-age LFPR to 81.9%, which was 1.2 percentage points below the January 2020
high of 83.1%.
Inflation began picking up early in 2021. Throughout the year, many factors helped drive
prices higher, including a slow recovery in global energy production, supply-chain
disruptions and related shortages of specific inputs, persistently strong demand for
durable goods, rising costs of food supply-chain inputs, brisk growth in house prices, and
increased demand for pandemic-sensitive services (such as travel, leisure, and hospitality)
as the economy reopened. Although inflation eased modestly in the third quarter, it again
accelerated by the end of the year. Over the year through December 2021, the headline
consumer price index CPI rose by 7.1% reflecting in part a nearly 50% jump in gasoline
prices and a 6.3% increase in the food CPI. In addition, growth in the CPI for core goods
and services rose by 5.5% over the year through December 2021, boosted by soaring prices
for new and used motor vehicles—with yearly gains of 11.8% and 37.3%, respectively—
and a 4.1% jump in the shelter index over the same period.
Economic Developments Since December 2021
Real GDP growth declined by 1.5% at an annual rate in the first quarter of 2022, reflecting a
much slower inventory build, a larger drag from net exports, and declines in government
spending at all levels. However, real growth in PDFD accelerated during the first quarter to
3.9% at an annual rate. Among its components, real PCE grew 3.1%, as growth in spending
on services accelerated to 4.8%, offsetting a flat reading in consumption of goods. Business
fixed investment jumped 9.2% at an annual rate in the first quarter. Although investment
in structures declined 3.6% and posed a small drag, equipment investment surged by
13.2% and spending on intellectual property products grew by 11.6%. Private residential