From 30,000 feet, the COVID lockdown and re-opening played out pretty much like we thought. GDP collapsed in the first half of 2020, then exploded in the third quarter, followed by strong, but erratic, quarterly growth ever since. The fourth quarter data, when it's released in January, will show 2021 had the fastest GDP growth, and highest inflation, since the 1980s.
As a reminder, this is not a normal business cycle and shouldn't be treated like one. We have never locked down businesses, we have never seen such a rapid peacetime expansion of federal spending, and we have rarely seen such a huge increase in the M2 measure of money.
Shutting down the economy destroys supply chains because they work best with a free flow of information. And paying people not to work after the economy is open makes it worse. Small businesses have suffered much more than large companies, so while profits and stock prices are at, or near, all-time highs, real GDP will still end 2021 lower than it would have if COVID had never happened. Meanwhile, inflation under COVID has been much higher than the pre-COVID trend.
2022: Moderate GDP, Persistent Inflation
December 20, 2021