The US economy grew strongly in the first quarter
A growth spurt has put the U.S. economy barely below its pre-pandemic size in the first quarter, prolonging what is shaping up to be a rapid, consumer-driven recovery this year.
Gross domestic product, the broadest measure of goods and services made in the United States, grew at a seasonally adjusted annual rate of 6.4% January through March, the Commerce Department said Thursday. That left the world’s largest economy less than 1% of its peak, reached in late 2019, just before the coronavirus pandemic hit the United States.
Households, many of which were vaccinated and armed with hundreds of billions of dollars in federal stimulus funds, were behind the first-quarter production spike by spending more on cars, bikes, furniture and more. expensive goods. The federal government has also increased its spending – on vaccines and business assistance.
“If you had asked me a year ago where we would be today, I certainly wouldn’t have said we would have recovered to pre-pandemic economic activity levels,” said Gregory Daco, US economist in chief at Oxford Economics. “Everything about this crisis has been unique. The speed and magnitude of the contraction in economic activity was unprecedented. The amount of political support that has been put in place has been extremely rapid. “
Hush Money Bikes, a bicycle store that opened last year in Lancaster, Pa., Has responded to requests for new bikes from customers as far as California, co-owner Ted Houser said. Stores are running out of bicycles in the United States, and manufacturers are struggling to fulfill orders. Suppliers cannot ship parts fast enough. A repair that once took a day now often takes weeks as the shop waits for parts to be delivered, Houser said.
“People have openly said, ‘This is my money, take it,’” Mr. Houser said. “But I think the demand goes beyond that. It really is a lifestyle thing right now. This is something people can do safely during the pandemic. “
Just over a year ago, the economy was contracting sharply – second-quarter output fell a record 31.4% annual rate – and the unemployment rate soared to 14.8% last April, a post-WWII peak. In 2020, the economy contracted 2.4%, comparing fourth-quarter output to that of a year earlier – the first slowdown since the financial crisis of 2007-2009.
Congress reacted quickly, approving several packages totaling around $ 5 trillion in aid to households and businesses. The Federal Reserve pushed its benchmark interest rate close to zero to reduce borrowing costs.
Since the end of last year, tens of millions of households have received at least one injection of the Covid-19 vaccine.
The result, economists say, is that the United States is leading the global economic recovery, a role reversal since the 2008 crisis when countries like China and Brazil led the way as the US recovery was lagging behind.
The economy has grown robustly for three consecutive quarters. The unemployment rate has since fallen to 6% as hiring accelerates. Workers’ unemployment benefit claims have also fallen to pandemic low in recent weeks, more recently a seasonally adjusted 553000 for the week ended April 24.
This spring, the government sent stimulus payments of $ 1,400 to most households, in addition to two earlier stimulus efforts. That money – and the money households saved by not traveling and eating out during the pandemic – has enabled individuals to purchase a range of goods and services.
With rising consumer spending the main driver of economic demand in the United States, there are signs that supply is failing to keep up with demand.
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Thursday, alerted investors that global supply chain issues, from semiconductor shortages to global shipping issues, could make it harder to meet rising demand.
“Areas of particular focus include semiconductors, transportation and raw materials,” CEO Jim Umpleby said on a call for results with investors. “There is still potential for impact later this year.” He added that the company could face higher costs as it develops contingency plans to get around the issues.
Meanwhile, the Federal Reserve kept its benchmark interest rate near zero, a move that helped lower mortgage interest rates. Economists believe the policy has encouraged many Americans to buy homes. Sales of previously owned homes hit a 14-year high last year, according to the National Association of Realtors, although the market lost some momentum this year in a tight supply.
Economists expect economic growth to pick up again in the second quarter and remain stable in the second half. Many expect production to increase by 6% to 7% in 2021.
Such robust growth comes with risks, such as an overheating economy and a sharp rise in consumer prices. Fed officials noted the recent upturn in inflation in a tariff policy statement released on Wednesday, but they said they expected the increase to be temporary. The Fed expects inflation to exceed the central bank’s target of 2% on average this year, and fall back to that level by the end of next year.
Some companies are already under pressure to raise prices. In San Diego, the Cork and Craft restaurant has struggled so hard to find cooks that it has increased wages from $ 4 an hour to $ 18 this year, says co-owner Matthew DeLoach. Workers are drawn to other industries, including construction, to earn higher wages.
“Some of the people who had previously worked [to the pandemic] aren’t interested in coming back for less than $ 24, ”Mr. DeLoach said. The restaurant plans to raise prices to cover additional labor costs.
—Eric Morath and Austen Hufford contributed to this article.
Write to Josh Mitchell at [email protected]
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