Ukrainian army soldiers stand next to multiple launch missile systems, after Russian President Vladimir Putin authorised a military operation, in eastern Ukraine, in Kharkiv region, Ukraine February 24, 2022.
Ukrainian army soldiers stand next to multiple launch missile systems, after Russian President Vladimir Putin authorised a military operation, in eastern Ukraine, in Kharkiv region, Ukraine February 24, 2022. Reuters / ANTONIO BRONIC

Russia's full overnight invasion of Ukraine overshadowed two reports released by the U.S. government on Thursday morning, indicating the U.S. economic recovery is getting stronger and broader.

A report from the U.S. Bureau of Economic Analysis (BEA) showed that gross domestic product — the most comprehensive measure of the nation's output over a calendar year -- grew at an annual rate of 7% in the fourth quarter. That's slightly higher than the 6.9% previously reported and in line with market expectations.

It's the highest growth since the second quarter of 2020 when the American economy began to recover from the COVID-19 pandemic, driven by a 23.6% rise in exports and 3.1% in consumption expenditures.

"The increase in private inventory investment was led by retail and wholesale trade industries," said the BEA report. "Within retail, inventory investment by motor vehicle dealers was the leading contributor. The increase in exports reflected increases in both goods and services. The increase in exports of goods was widespread, and the leading contributors were consumer goods, foods, feeds and beverages, as well as industrial supplies and materials. The increase in exports of services was led by travel."

The BEA also reported that 232,000 Americans filed for unemployment benefits in the week ended Feb. 19, down from 248,000 in the previous week. That's slightly better than what markets expected and below the four-week moving average, which removes volatility from the data, meaning more Americans are getting back to work.

The reports suggest that the U.S. economic recovery from the COVID-19 pandemic is getting stronger and broader and is on a virtuous path. That's a situation marked by higher spending, higher output and higher job growth.

America's economic recovery faces the headwinds of geopolitical events like the Russia-Ukraine crisis, which adds fuel to food and energy inflation. Ukraine is a significant wheat producer while Russia is a big wheat and energy producer.

Rising food and energy inflation makes it more urgent for the Federal Reserve to hike interest rates, which could push the U.S. economy into stagflation, a combination of high inflation and slow growth. That's not a good prospect for equities.

"Global markets will remain choppy over the next few weeks. Thursday's attack on Ukraine has thrown up all sorts of possibilities that were unforeseen until a few weeks ago," said Kunal Sawhney, CEO of Kalkine Group. "So, the markets will price in the Ukraine factor, given the disruptions it can cause to global supply chains."

Meanwhile, a global market sell-off could depress consumer spending due to the loss of wealth among investors, who are also consumers. That's not a good prospect for U.S. and global economic growth.