America is on the path to recovery and economic growth is rampant. But the pandemic recession has been severe and we’re still not done growing our way out of it.
US gross domestic product — the broadest measure of economic activity — grew at an annualized pace of 6.4% in the first three months of the year, adjusted for seasonal swings, the Commerce Department reported Thursday.
The government uses the ‘annualized’ rate, which assumed the quarterly growth rate would continue for a full year, because it makes it easier to compare numbers of different periods of time.
That was slightly better than economists had predicted, and a faster rate than the 4.3% recorded at the end of 2020. In normal times, a rate above 6% would represent electric growth. But during the pandemic, the situation has become quite different. The rebound in economic activity has been faster than initially expected, but even after three quarters of sharp growth –— including the best quarter on record — we’re not back to pre-pandemic levels.
Looking at the economy in dollar terms, real GDP stood at $19.1 trillion in the first quarter. Before Covid, in the last three months of 2019, it was at nearly $19.3 trillion. The economy began contracting in the first quarter last year.
The first quarter was the best since 1984, which is am impressive feat. But we’re still not back to where we were before the pandemic started.
This rebound, which came on the tails of a powerful cocktail of fiscal and monetary stimulus, is a good sign that the US economy is moving in the right direction, even though growth has slowed from the enormous 33.4% annualized jump in the second quarter of 2020 when the economy started to reopen.
More work to be done
Much of the economy is growing again and that’s great news. Importantly, the advance in first-quarter GDP was driven in large part by consumers spending money — particularly on cars, food and beverages and services like restaurants and accommodations, according to the Commerce Department report.
The jump in spending marks consumer confidence given the ongoing vaccination effort and more stimulus from Washington. Particularly compared with the end of 2020, when rising virus infections spurred renewed job losses in the services industry, said Mike Englund, chief economist at Action Economics, in a note.
Still, things aren’t entirely back to normal yet and there are pockets where things continue to look much more dire.
Millions of Americans remain out of work. Data from the Labor Department showed another 553,000 workers applied for unemployment benefits last week, adjusted for seasonal swings. More than a year after jobless claims first spiked as businesses shuttered, the weekly number of benefit applications is still more than double from its pre-pandemic level.
And the American economy runs on consumer spending, so solving the jobless crisis is a key aspect to returning the economy to its previous strength.
Until businesses are fully reopen and Americans feel no impediment to travel and visit restaurants as they did before Covid-19, getting the jobs and growth stats back to normal will be difficult.
“The primary policy takeaway from this report is stay the course,” wrote Joe Brusuelas, chief economist at RSM US. “It is essential that the fiscal and monetary authorities follow through on current policy paths for the economy to return to full employment which we expect to be reached in the second half of 2022.”
Between January and March, personal incomes increased by $2.4 trillion, or 59%, compared with the final quarter of 2020.
The government’s relief efforts including stimulus checks had a lot to do with the rise in incomes, according to the Commerce Department.
For now, people are also still saving more than in pre-pandemic times. The personal savings rate stood at 21% in the first quarter, for a total of $4.12 trillion.