Government money fuels the US economy in the first quarter
U.S. economic growth likely picked up in the first quarter, fueled by massive government assistance to households and businesses, paving the way for what is expected to be the best performance this year in nearly four decades.
The U.S. economy is rebounding faster relative to its global rivals, thanks to two additional rounds of COVID-19 relief funds from Washington as well as easing anxiety over the pandemic, which has boosted domestic demand and allowed service businesses like restaurants and bars to reopen.
Although the expected recovery in gross domestic product in the last quarter leaves output just below its end-2019 level, the economy is at least a few years away from fully recovering from the pandemic recession, which began in February 2020.
The Commerce Department will release its snapshot of first-quarter GDP growth Thursday at 8:30 a.m. EDT (12:30 GMT).
“This will be a solid number for GDP,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “This is one small milestone among many that we need to pass before we can say that we have fully recovered from the recession.”
According to a Reuters survey of economists, the economy likely grew at an annualized rate of 6.1% in the first three months of the year. This would be the second fastest rate of GDP growth since the third quarter of 2003 and follow a rate of 4.3% in the fourth quarter.
The survey, however, was conducted ahead of this week’s March durable goods orders, the goods trade deficit as well as wholesale and retail inventories. Goldman Sachs economists initially lowered their estimate of GDP growth by a tenth of a percentage point to a rate of 7.4% after the durable goods data.
They then raised the estimate to a rate of 7.7% after the goods trade deficit and inventory data.
The government of former President Donald Trump provided nearly $ 3 trillion in relief funds at the start of the pandemic, triggering record GDP growth in the third quarter of 2020. This was followed by nearly $ 900 billion additional stimulus at the end of December. President Joe Biden’s administration offered another $ 1.9 trillion bailout package in March, which sent one-time checks of $ 1,400 to qualified households and extended a $ 300 unemployment grant until early September.
On Wednesday, the Federal Reserve acknowledged booming domestic activity, but the US central bank gave no sign that it was ready to reduce its extraordinary support for the recovery. Read more
The rapid acceleration in the economy could dampen the enthusiasm of some moderate Democrats for Biden’s ambitious economic agenda. Biden unveiled a $ 1.8 trillion package for families and education on Wednesday in his first joint speech to Congress. Republicans oppose more stimulus, now worried about rising debt. The new package and a previous infrastructure and jobs plan total around $ 4 trillion, rivaling the annual federal budget.[nL1N2ML15K}[nL1N2ML15K}[nL1N2ML15K}[nL1N2ML15K}
Some economists fear that massive government funding could trigger inflation. Many economists, including Fed Chairman Jerome Powell, expect higher inflation to be transient, arguing the labor market remains 8.4 million jobs below its February 2020 high .
A separate Labor Department report on Thursday is expected to show 549,000 people applied for state unemployment benefits last week, according to a Reuters survey. Although claims fell from a record 6.149 million in early April 2020, they remain well above the 200,000 to 250,000 range considered compatible with a healthy labor market. About 17.4 million Americans were receiving unemployment benefits in early April.
The economy continued to gain momentum at the start of the second quarter, with consumer confidence reaching a 14-month high in April, thanks to the fiscal stimulus and the extension of the COVID-19 vaccination program to all American adults. This helps to release pent-up demand.
Americans have accumulated at least $ 2 trillion in excess savings. Many economists expect the economy to fully recover from the recession by the end of 2023. They expect growth this year to reach 7%, which would be the fastest since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.
“Assuming the vaccines remain effective against the newer variants of the virus, the economy is expected to experience significant growth for the rest of the year,” said Kevin Cummins, chief US economist at NatWest Markets in Stamford, Connecticut.
“The combination of an extraordinary amount of fiscal stimulus, a very accommodating monetary policy, an extremely positive supply shock as the economy reopens and a pile of excess savings to support consumption makes us extremely optimistic about GDP growth in 2021 and 2022. “
Growth in the first quarter was likely driven by consumer spending, which is expected to have accelerated after almost slowing down in the last three months of 2020. Another quarter of double-digit growth is expected for business spending in China. equipment, as well as a rebound in investment in non-residential structures such as mineral exploration, wells and wells.
Residential investment likely contributed to GDP growth for a third consecutive quarter. But trade was likely a drag for the third quarter in a row, as some of the strong domestic demand was satiated by imports. High consumption meant less unsold goods in warehouses, which likely resulted in inventory build-up being subtracted from GDP growth.
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