A struggling American economy hit the gas in early 2021, fueled by massive federal fiscal stimulus, increased coronavirus vaccines and an increase in hiring. Here’s what to watch for on Thursday when the government reports first-quarter gross domestic product.
Faster growth The growth of the US economy likely accelerated to an annualized rate of 6.5% in the first three months of 2021, according to economists surveyed by Dow Jones and The Wall Street Journal. GDP is the sum of all goods and services produced in the US, making it the official scorecard for the economy. The Commerce Department will release the data at 8.30 am ET Thursday. The US expanded at a seemingly rapid pace of 4.3% in the fourth quarter, but growth stalled towards the end of 2020 after a record explosion of coronavirus cases resulted in further restrictions on business activity and of consumers. America’s economic rebound began earlier this year after Americans began receiving coronavirus vaccines in greater numbers. The economy received another big boost thanks to a $ 1.9 billion financial aid that was approved in early March. In normal times, the US economy grows on average between 2% and 2.5% annually. However, the pandemic has generated unprecedented ups and downs in the economy. Consumers The government sent checks for $ 600 in January and checks for $ 1,400 in March to most Americans, so it is not surprising that consumer spending increased in the first quarter. Economists predict that disbursements rose nearly 10%, compared to just 2.3% in the fourth quarter. Consumer spending accounts for more than two-thirds of economic activity in the United States and explains in large part why the first quarter was so strong. What also helped was the expansion of unemployment benefits and an increase in hiring as businesses reopened after closings to combat the pandemic. That put about 1.5 million people back to work in the first quarter. Business Businesses also got involved. They hired more people, increased investment, and increased production in an effort to keep up with growing demand. Investment in new equipment alone could have exceeded 9% and the housing market may have been even stronger. Home sales have exploded during the pandemic due to ultra-low interest rates and more people moving from cities to escape the virus. The biggest problem companies face: getting urgently needed supplies is reasonable prices. The cost of most raw or partially finished materials (wood, for example) has skyrocketed. And a global semiconductor shortage hurts automakers and other manufacturers that rely on computerization. Because manufacturers have not been able to keep up with demand, their stocks of unsold goods or inventories have likely decreased. Government A large part of government stimulus spending is expected to be reflected in GDP. Government outlays may have increased by almost 10%. It’s not just about the federal government spending spree, either. State and local spending likely increased as more public schools reopened. Trade The biggest drop in first-quarter GDP was the nation’s record international trade deficit. The deficit increased sharply in the first three months of the year. Read: Growing US trade deficit hits record high, but there’s a silver lining. However, there is a silver lining. The trade deficit has skyrocketed because a stronger American economy has allowed Americans to buy more imported goods, such as French wine, Japanese cars or cell phones made in China. US exports, on the other hand, have been affected by lower demand from major trading partners whose economies are still weak. Europe, for example, has imposed new blockades amid a struggle to vaccinate its populations.