United States: GDP growth gains momentum in the first quarter
According to a preliminary GDP estimate released by the Bureau of Economic Analysis, the economy expanded 6.4% in Q1 in seasonally-adjusted annualized terms (SAAR), beating analysts’ expectations of 6.1% growth and accelerating from the previous quarter’s 4.3% rise. In annual terms, GDP rose 0.4% in Q1 after dropping 2.4% in Q4 2020, marking the first annual increase since Q1 last year.
The first quarter’s acceleration was predominately driven by stronger domestic demand growth. A relatively quick vaccine rollout supported consumer and business confidence, while strong fiscal stimulus in the form of cash handouts provided a boost at the tail end of the quarter, following the approval of President Biden’s Covid-19 relief package. Private consumption growth rose to 10.7% SAAR (Q4 2020: +2.3% SAAR), while government spending increased 6.3% in Q1 (Q4 2020: -0.8% SAAR). That said, fixed investment growth moderated to 10.1% from 18.6% in the previous quarter.
Turning to the external sector, exports of goods and services dipped 1.1% in Q1, after expanding 22.3% in the fourth quarter of last year, while growth in imports of goods and services eased to 5.7% from 29.8% in Q4. The external sector thus subtracted 0.9 percentage points from the headline figure, which was less pronounced than the fourth quarter’s subtraction of 1.5 percentage points.
Commenting on the outlook for the second quarter, Katherine Judge, senior economist at CIBC World Markets, noted:
“Growth in the second quarter is likely to be brisk given the overhang of savings that consumers have, as well as the potential for rebuilding manufacturing stockpiles, although the auto sector in particular will face challenges as a result of chip shortages.”
Looking further ahead, James Knightley, chief international economist at ING, noted:
“The U.S. economy has already experienced $5tn of stimulus through measures enacted by Presidents Trump and Biden and is set to be boosted by an additional $4tn of spending, partially offset by some tax rises, from Joe Biden’s latest infrastructure and social spending plans. That is equivalent to around 40% of GDP all in and with household balance sheets in great shape and the U.S. economy opening up more and more we should be expecting very strong growth for several quarters to come.”