Invigorated by government stimulus money, U.S. consumers helped push the economy nearly out of its pandemic-era hole in the first quarter, putting this year on track to be the best for economic growth in decades.
- GDP increased at an annual rate of 6.4% in the first quarter, an acceleration from the 4.3% growth in the previous quarter and double the average growth rate pre-pandemic.
- Consumer spending, fueled by cash assistance from the government, drove the increase in GDP.
- The economy is on track for the best year for growth in 70 years, some economists say.
Real gross domestic product, or GDP, increased at an annual rate of 6.4% in the first quarter, roughly in line with economists’ estimates and a significant acceleration from the 4.3% increase in the fourth quarter, data released by the Bureau of Economic Analysis Thursday showed. It’s about double the average growth rate for quarterly GDP prior to 2020, when lockdowns during the onset of the COVID-19 pandemic crushed the economy.
Consumers drove most of the first-quarter increase, fueled by infusions of aid from government relief packages approved in December and March. Personal consumption, the biggest contributor of GDP, jumped 10.7% in the first quarter. Spending on durable goods—things like cars, appliances, and electronics—shot up 41.1%, while services also were more in demand, showing a 4.6% increase.
A measure of the country’s output, GDP is likely to take off from here, economists said, as vaccines push the country toward herd immunity, businesses reopen or expand capacity, and people have plenty of places to spend money they’ve saved during the pandemic. Oxford Economics, a U.K.-based research firm, said growth in the second quarter—April to June—should almost double to 13%, putting the economy on track for about 7.5% GDP growth in 2021, the biggest annual growth in 70 years.
“The economy has passed its inflection point, and now we’re going to see stronger spending, stronger employment, and stronger growth,” said Gregory Daco, Oxford Economics’ chief U.S. economist. “The engines of growth are revving up.”
Indeed, the economy’s current state is a far cry from where it was at the start of the pandemic, when efforts to curb the spread of the virus caused GDP to plunge 31.4% in the second quarter of 2020. The economy has been recovering since, and is now just 0.9% shy of where it was in the fourth quarter of 2019. It should more than recover the rest in the coming months, economists said.
Consumers also saved $4.12 trillion in the first quarter, or 21% of their disposable income. It’s the highest personal saving rate since the first government aid package pushed it up to 26% in the second quarter of 2020. This saving is a good thing for the economy, Daco said, because it means consumers kept some of their stimulus money in reserve and will likely continue spending it into 2022, preventing a significant slowdown next year. Consumer spending will grow more than 9% in 2021, Oxford predicts, which would be the largest one-year increase on record.