US economic recovery accelerates in first quarter
Rising vaccinations, faster job growth and two rounds of federal stimulus payments combine to supercharge household spending
US economic growth accelerated in the first quarter as a rush of consumer spending helped bring total output to the cusp of its pre-pandemic level.
GDP in the world's leading economy, expanded at a 6.4% annualised rate after a softer 4.3% pace in the fourth quarter, the commerce department’s preliminary estimate showed on Thursday. Personal consumption, the biggest part of the economy, surged an annualised 10.7%, the second-fastest since the 1960s.
The inflation-adjusted value of domestically produced goods and services climbed to an annualised $19.1-trillion, indicating GDP will soon eclipse the pre-pandemic peak of nearly $19.3-trillion.
US equities climbed to all-time highs after the GDP report and a batch of corporate earnings.
Rising vaccinations, faster job growth and two rounds of federal stimulus payments combined to supercharge household spending. As government restrictions on activity are widely lifted, consumer demand is seen broadening and driving outlays for long-downtrodden services such as travel and leisure.
A host of high-frequency data, including restaurant and air travel bookings, already confirms a rapidly improving economy that has helped drive stock prices to fresh highs.
The pent-up demand that’s seen driving outsize growth in 2021 is propelling prices skyward at the same time producers are experiencing material shortages and supply-chain challenges. Further, the Biden administration and the Federal Reserve are pushing ahead with policy prescriptions that provide even more juice for the economy.
The median forecast in a Bloomberg survey of economists called for 6.7% growth in the January through March period.
The pace of government spending jumped at a 6.3% annual rate, the fastest since 2002 and a reflection of federal stimulus. Annualised nondefence outlays climbed by the most since 1963.
The pickup in growth in the January to March period also reflected continued strength in business investment and housing. Nonresidential investment rose an annualised 9.9%, driven by equipment and intellectual property, while residential investment increased at a 10.8% rate.
Trade and inventories
Firm household and business spending has left inventories lean and spurred import demand — two areas that weighed on first-quarter growth. Net exports of goods and services subtracted 0.87 percentage point from GDP, while the change in inventories subtracted 2.64 points.
“When you get a GDP report that features accelerating consumption and declining inventories, it can be considered even stronger than the headline number might suggest,” said Kevin Cummins, chief US economist at NatWest Markets. “I’m really optimistic about the growth path we’re going to have over the next three or four quarters.”
Excluding the trade and inventories components of GDP, final sales to private domestic purchasers, a gauge of underlying demand, accelerated to a 10.6% pace.
US growth forecasts have been upgraded over the past few months after the $1.9-trillion pandemic relief bill that passed through Congress along party lines proved to be larger than many economists originally expected.
In addition, President Joe Biden has now proposed two additional spending plans — one focused on infrastructure and the other on families — that would infuse trillions more dollars into the economy over the next decade.
Meanwhile, Fed officials are sticking with their ultra-easy monetary policy to ensure businesses have access to capital and consumers can borrow cheaply for big-ticket items such as homes and cars.
“We were in a deep, deep hole a year ago and now with a lot of help from fiscal policy, some additional help from monetary policy, and a great deal of help from vaccination, we’re seeing a strong rebound in activity,” Fed chair Jerome Powell said during a press conference on Wednesday after the central bank’s policy meeting.
While acknowledging the economy’s progress, the Fed kept its key interest rate near zero and maintained its $120bn monthly pace of bond purchases. In their statement, policymakers said that while inflation has picked up, it mostly reflected “transitory factors”.
The GDP report showed the personal consumption expenditures price index excluding food and energy costs climbed an annualised 2.3% in the first quarter after a 1.3% pace in the previous three months.
While overall output has yet to surpass pre-pandemic levels, the value of nonresidential investment has and personal consumption is just tens of billions of dollars from doing so.
Disposable personal income jumped in the quarter by the most on record, to an annualised $19.6-trillion, after the pandemic relief bills passed in December and March distributed direct payments to millions of families and reinstituted a weekly top-up in unemployment benefits. The personal saving rate climbed to 21% in the quarter, the second highest on record.
Bloomberg News. For more articles like this, please visit us at bloomberg.com
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