Strong start to US economy heralds stellar year

A good start for the US economy heralds a stellar year

Business News: Strong start to US economy heralds stellar year.

The economy picked up speed last quarter, shaking off some of the lingering effects of the pandemic with rising consumer spending, buoyed by government stimulus controls and easing restrictions in many parts of the country. The Commerce Department reported Thursday that the economy grew 1.6% in the first three months of 2021, compared to 1.1% in the last quarter of last year.

But economists say it’s already changing as more vaccinations are provided and restrictions on coronavirus-related activities are eased. With a better climate, the savings accumulated over a long year of lockdowns, and the desire to compensate for forced inactivity, Americans will have plenty of reasons to go out and spend.

“Consumers are now back in the driver’s seat when it comes to business, and that’s the way we like it,” said Gregory Daco, US chief economist at Oxford Economics. “A consumer who feels confident in prospects generally spends more freely.” Overall, the largest measure of the economy – gross domestic product – grew by 1.6% in the first three months of 2021, compared to 1.1% in the last quarter of last year. On an annualized basis, the first quarter growth rate was 6.4%.

“It’s good news, but the best news is coming,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “There is nothing in this report that makes me think the economy will not grow at a gangster pace in the second and third quarters.” Expansion last quarter was spurred by stimulus controls, he said, which quickly translated into purchases of durable goods such as cars and appliances.

“This demonstrates the value of government intervention when the economy is on its knees from Covid, “he added.” But in the coming quarters, the economy will be much less dependent on stimuli as individuals will use the savings accumulated during the pandemic. “

Consumer spending increased 2.6% in the first three months of the year, with a 5.4% increase in purchases of goods accounting for most of the growth. Spending on services, which plummeted during the pandemic, increased by 1.1%.

“This demonstrates the value of government intervention when the economy is on its knees from Covid, “said Ian Shepherdson, chief economist at Pantheon Macroeconomics.” But in the coming quarters, the economy will be much less dependent on stimuli as individuals will use the savings accumulated during the pandemic. “

Economic growth would have been even stronger had it not been for a decline in inventories, said Michael Gapen, Barclays’ US chief economist. Supply chain constraints and shortages of parts such as semiconductors are causing production stoppages, he said, particularly in the automotive sector.

This is expected to subside in the months ahead, he added, especially as companies take a cue from more bullish consumers. “We are in the opening stages of what could be a very strong six to nine month period for the US economy as it emerges from the pandemic, “he said.” The best is yet to come.