US economic growth received a boost in the first three months of 2021 from massive fiscal stimulus that fuelled consumer spending, as well as looser lockdown restrictions after new Covid-19 infections slowed.
Gross domestic product advanced 6.4 per cent on an annualised basis in the first quarter, the commerce department said on Thursday. That topped economists’ expectations for 6.1 per cent growth, according to a Refinitiv survey.
Economic output advanced 1.6 per cent compared with the previous quarter, based on the measure used by other major economies.
Growth accelerated as more Americans were vaccinated against coronavirus and states began to relax pandemic restrictions. The US has administered 234.6m doses so far, and 98m Americans are fully vaccinated — representing 29.5 per cent of the total population.
Consumers spent lavishly on goods and services as the economy reopened, drawing on stimulus cheques as well as their savings pile. Personal consumption expenditures grew at a 10.7 per cent annualised pace.
“I think we in the economist community have been surprised by how quickly the economy came back to life in Q1,” said Oren Klachkin, economist at Oxford Economics.
“The consumer drove the economy’s resurgence last quarter, mainly thanks to an ongoing splurge on durable goods but also a revival in services outlays. Reopenings, the accelerating hiring boom and very generous fiscal transfers all boosted spending last quarter.”
The data come after US President Joe Biden said America was “ready for take-off” as he touted the economic recovery during a speech to Congress on Wednesday. Having already pushed through his stimulus plan in March, Biden has now shifted his attention to a $2.3tn infrastructure spending bill.
The Federal Reserve on Wednesday acknowledged progress in the economic recovery, but maintained that its future path would “depend significantly on the course of the virus”. Jay Powell, the Fed chair, said that while the “recovery has progressed more quickly than generally expected, it remains uneven and far from complete”.
Indeed, despite the improvement, the labour market is a long way from recovering all the jobs lost since the start of the pandemic. Powell on Wednesday noted that one month of stellar job growth was “not enough”.
A separate report from the labour market on Thursday showed that 553,000 Americans filed for new unemployment benefits last week, close to the lowest level since the start of the pandemic but still historically elevated.
The Fed, which signalled that it was in no rush to remove its ultra-easy monetary policy, has projected 6.5 per cent GDP growth and an unemployment rate of 4.5 per cent this year. Growth is expected to moderate to 3.3 per cent in 2022.