The economy grew 6.4% in Q1 as stimulus checks, COVID shots, looser business constraints spurred more spending

A U.S. economy that was supposed to be ailing this past winter instead got a couple of big shots in the arm, kicking off what’s likely to be a historically strong year.

Economic growth accelerated in early 2021 as federal stimulus checks and fast-growing COVID vaccinations left consumers flush with cash and ready to spend it just as more states lifted business constraints. The developments pushed up a recovery that wasn’t supposed to gather force until mid-year.

The nation’s gross domestic product, the value of all goods and services produced in the U.S., increased at a seasonally adjusted annual rate of 6.4% in the January-March period, the Commerce Department said Thursday. Economists surveyed by Bloomberg had forecast a 6.9% rise in GDP.

The surge in consumer spending was bolstered by another strong quarter of business investment as companies rushed to meet the customer demand with purchases of new equipment and factory machines and housing starts continued to soar. Those advances more than offset the negative effects of slowing exports and a drawdown in inventories amid lingering supply-chain snarls.

Consumption, which makes up 70% of economic activity, led the way, rising 10.7% following a pullback late last year. The $900 billion COVID relief package passed by Congress in December dispatched $600 checks to most Americans. That was followed by a $1.9 trillion aid measure in March that disbursed $1,400 checks, with 163 million people receiving a total $384 billion in payments so far, according to the Treasury Department.

That, along with enhanced unemployment benefits and $1,200 stimulus checks a year ago, has left Americans with about $2.4 trillion in additional cash since the pandemic began.

Meanwhile, about 42% of the U.S. population has gotten at least one vaccine shot, according to Goldman Sachs. Most states have eased or lifted business restrictions, such as capacity limits for restaurants and gyms. And the seven-day average of new daily COVID cases is at 54,000, down 21% from the previous week, according to the Center for Infectious Disease Research and Policy.

Employers added 468,000 jobs in February and 916,000 in March – months that were widely expected to feature paltry gains or even losses before the federal assistance was approved and the pace of vaccinations picked up.

The U.S. is on course to reach herd immunity — which makes person-to-person transmission highly unlikely – by late May, and the economy should be fully reopened by June, according to Pantheon Macroeconomics. As Americans return to activities such as dining out, traveling and going to movies, consumption is expected to ramp up further.

As a result, the economy is projected to grow 6.2% this year, the most since 1984, according to economists surveyed by Wolters Kluwer Blue Chip Financial Indicators.

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How other parts of the economy fared last quarter:

Business investment leaps again

Business capital spending spiked for a third straight quarter, climbing 9.9% after a 13.1% rise late last year.

Spending on computers, delivery trucks, factory machines and other accessories shot up 16.7%. Outlays on buildings, oil rigs and other structures fell 4.8%.

Many firms are buying equipment to serve growing consumer demand for services as the economy reopens. They also have continued to purchase technology for employees to work remotely. And manufacturers have expanded their operations as consumers have snapped up electronics and other goods for the home.

A growing number of states are easing or lifting business constraints. (Photo: Natalie_magic / iStock via Getty Images)

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