The U.S. economy hop-skipped forward in the first three months of 2021 amid fresh stimulus and a rollout of vaccines both in the U.S. and globally that allowed economic growth to rebound from its worst contraction since 2007-2009.
The U.S. economy expanded 6.4% on an annualized basis in the first quarter, the Commerce Department said Thursday in its advance estimate, extending what economists project will be a robust, consumer-led recovery from the pandemic this year. Economists polled by FactSet had been expecting GDP growth of 6.3%.
Output grew at a 4.3% rate in the fourth quarter of last year after rising at a breathtaking 33.4% clip in the third. For all of last year, the economy shrank by 2.4% when comparing fourth-quarter output to a year earlier - the first contraction since the 2007-2009 recession.
The first-quarter recovery came as more people received a COVID-19 vaccine, states and cities lifted business restrictions, and stimulus payments hit bank accounts, prompting consumers to spend on everything from homes and cars to clothes and leisure-related activities such as dining out.
'Real Firepower' Behind Growth Rebound
E*TRADE Financial Managing Director of Trading and Investing Product Chris Larkin said the numbers show "real firepower behind an economic comeback" as more cities fully reopen in the coming months and vaccinations pick up speed.
Consumers accelerated spending by 10.7% in the quarter, the Commerce Department said. Most of that spending was on goods, which rose 23.6%, though spending on services also grew by 4.6%.
That matched consumer confidence numbers released earlier this week, which showed confidence among consumers rose in April to the highest level in 14 months.
And there may be more spending to come. The report noted that the savings rate soared to 21%, from 13% in the fourth quarter.
It all marks one of the most dramatic economic turnarounds on record, given the severity of last year's downturn. Just a year ago the pandemic pushed up the unemployment rate to a post-World War II high of 14.8%.
The rate has since fallen to 6%. Worker filings for jobless benefits also have fallen to pandemic lows in recent weeks.
Jobless Claims Hold Below Pre-Pandemic Levels
On that front, the Labor Department reported Thursday that unemployment claims declined to pandemic lows for a third straight week, dropping 13,000 to 553,000. Economists polled by FactSet had been expecting claims 555,000.
Economists expect economic growth to pick up further in the second quarter and remain steady in the second half of the year. Many expect output to grow between 6% and 7% in 2021.
Such robust growth has risks, such as causing the economy to overheat and trigger a sharp rise in consumer prices. The Federal Reserve kept its benchmark interest rate near zero on Wednesday and noted a recent pickup in the pace of inflation, though Fed Chairman Jerome Powell said he expects the increase to be temporary.
The Fed expects inflation to rise above the central bank's goal of averaging 2% this year, and recede to that level by the end of next year.