Most of us would like to put the past two years in the rearview mirror — in a major way. Since March 2020, we have been absorbing the devastating physical, emotional and financial impact of COVID-19. Now, as 2021 has come to a close, it's worth reviewing where we stand as the second tumultuous year concluded.
Big picture: After the worst recession since the Great Depression, when the economy shrank by 3.4%, the recovery came to fruition in 2021. It is likely that the U.S. economy expanded by an estimated 6% during the year, fueled by a third round of government stimulus, in the form of the $1.9 trillion American Rescue Plan. (You have already forgotten about the two massive measures enacted in 2020, the March 2020 $2.2 trillion CARES Act, followed by the additional $900 billion relief bill passed in December.)
The 2021 legislation delivered $1,400 stimulus checks and child tax credits to millions of families. In fact, "How to be eligible for stimulus check" nudged out "How to be more attractive" as the No. 1 "How to" search in 2021, according to Google Trends.
In addition to government support, the Federal Reserve maintained emergency measures, including monthly bond buying and zero-percent interest rates to grease the wheels of the economy and financial markets. Through the combination of the robust fiscal and monetary actions, the 2021 U.S. economy is poised to see the strongest annual growth rate since 1984, year when GDP surged by 7.2%.
COVID-19 dynamic: The COVID-19 recession was unique in that the drop in output was severe and swift. As much of the country was locked down and waiting for vaccines, households were sitting on a lot of cash — about $2.4 trillion in excess savings. When lockdowns were lifted and they were armed with all of that money, Americans were ready to unleash their consumptive habits. The rapid spending caught producers by surprise and suddenly we were all learning about the supply chain, shipping containers and logistics.
Inflation is the new black: Like an old-fashioned trend that pops back up, so too is the concept of inflation. While the economy is not close to the peak annual inflation seen in 1980 (that year, prices accelerated by 13.5%), prices as measured by the Consumer Price Index are running at an annual pace of 6.8% as of November, the strongest annual pace in four decades.
In his July testimony before the House Financial Services Committee, Federal Reserve Chair Jerome Powell noted that the economy has run headfirst into a "perfect storm of high demand and low supply," which should pass as the economy normalizes. While the Fed had maintained that the spike in prices would be "transitory," or temporary, by the end of the year, the central bank had shifted its policy to reflect that inflation is likely sticking around longer than previously thought — and that it would have to shift its policy as a result.
The Great Resignation/labor market shortage: As the year progressed, workers found themselves in a new position of power. Job openings were abundant and, for the first time in about two decades, many found that they could leverage a chaotic labor market to their advantage.
Housing: The housing market finished the year a little less hot, though it's surely simmering because of low inventories levels. Unfortunately, even as activity slows, prices remain high. As more properties come on to the market, the situation should improve.
Three-peat for stocks: You didn't have to own meme stocks, Bitcoin or NFTs in 2021 to enjoy gains. The U.S. stock market is about to complete a three-peat of annual double-digit gains.
Jill Schlesinger, CFP, is a CBS News business analyst. She welcomes comments and questions at email@example.com.