Reinvigorated consumers helped the economic recovery in the United States gain momentum in the first three months of this year, with growth expanding 6.4 percent on an annualised basis, the US Bureau of Economic Analysis (BEA) said on Thursday.
The increase in gross domestic product (GDP), which measures the total output of goods and services within a specific period, was powered primarily by US consumers.
Americans were increasingly inclined to open their wallets and spend as COVID-19 vaccination drives, restriction rollbacks, trillions of dollars in federal coronavirus relief aid, and an ongoing easy money policy from the US Federal Reserve helped unleash pent-up demand.
“In early 2021, the US economy was served a strong cocktail of improving health conditions and rapid vaccinations along with a fizzy dose of fiscal stimulus and a steady flow of monetary policy support,” Gregory Daco, lead US economist at Oxford Economics, wrote in a note to clients.
The increase in first-quarter GDP follows a 4.3-percent gain in the final three months of 2020.
From January through March of this year, Americans splashed out on cars and trucks, as well as restaurants, bars and hotels – a spending spree captured by a data point known as personal consumption expenditures, which surged 10.7 percent in the first quarter on an annualised basis.
Business investment was also brisk, growing 9.9 percent on an annualised basis.
As consumers sharpen their spending appetites, and businesses gear back up to serve them, supply-chain bottlenecks are forming, leading to price increases.
That has sparked a fierce debate among economists as to whether inflation could get out of hand and prompt the Fed to raise interest rates.
Fed chief Jerome Powell has been adamant that he thinks the price spikes will be temporary – a point he reiterated on Wednesday during a press conference following the conclusion of the Fed’s latest two-day policy meeting.
Powell also reiterated that the US central bank will continue with its easy money policy until the nation’s labour market has fully healed from last year’s pandemic pummelling.
The US jobs market is still 8.4 million jobs shy of recuperating all of the 22 million jobs it lost during the first round of lockdowns last year, and that deficit doesn’t take into account how much the labour force and the economy have grown since then.
While the jobs market recovery continues to trail the broader economic rebound, it is nevertheless on track.
The number of Americans filing first-time claims for unemployment benefits with states continues to trend lower, falling by 13,000 last week, to 553,000, the US Department of Labor said on Thursday.
The conundrum facing the Fed now is how to dial back the extraordinary support it has given the economy through the pandemic without triggering a repeat of the 2013 “taper tantrum”.
Back then, the Fed found itself in the position of wanting to raise interest rates. But as soon as it signalled it was even thinking about doing that, financial markets had a hissy fit and sent yields on US Treasuries sharply higher. That surge in Treasury yields threatened to derail the US economy’s long, drawn-out recovery from the Great Recession of 2007-2009.
But the economy is rebounding at a far faster clip now than it did after the Great Recession. And many economists think the recovery will continue to accelerate as the year unfolds.
“Looking ahead, we foresee the US economy’s spring bloom turning into a summer boom,” wrote Daco.