US GDP growth outpaced expectations in 2021

Jason Furman (PIIE) and Wilson Powell III (Harvard Kennedy School)

US GDP growth outpaced expectations in 2021 (Revised)


Roughly a year ago, some of the major economic forecasters expected the US economy to grow between 3.4 and 4.2 percent in the four quarters of 2021. The new advance estimate from the Bureau of Economic Analysis shows that the economy grew 5.5 percent over this period, substantially faster than these forecasters expected.

Even the most optimistic projection, from the Federal Reserve's Federal Open Market Committee participants, was more than a percentage point too low. Growth was strong throughout much of the year as fiscal and monetary support helped fuel demand. By the second quarter growth had already reached 3/4 or more of what forecasters expected for the full year in just half of the time.

This fast pace of growth has helped the US economy narrow the shortfall from its potential. Real GDP was 3.6 percent below the Congressional Budget Office's (CBO) pre-pandemic estimate of potential real GDP at the end of 2020, but this gap shrank to 0.2 percent at the end of 2021. CBO's estimate of potential incorporated the expectation that GDP growth would slow from its pre-pandemic pace as the rate of employment growth over 2018 and 2019 was unlikely to be sustained.

This PIIE Chart is based on Jason Furman and Wilson Powell III's blog post, The US economy grew faster than expected in 2021, but the pandemic transformed its composition.

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