The U.S. economy grew at a robust annual rate of 6.4% in the first three months of this year, unchanged from the government’s initial estimate. The recovery from last year’s deep recession gained steam at the beginning of this year, helped by vaccines to combat the virus and trillions of dollars in government assistance.
The rise in the gross domestic product (GDP), the economy’s total output of goods and services, was the same as the government’s first look one month ago, the Commerce Department reported Thursday. Upward revisions in spending by consumers, who account for two-thirds of economic activity, were offset by weaker growth in exports.
Economist believe GDP growth could top 10% in the current April-June quarter.
“When provided with the ability to spend in a safe way, consumers have the will and the desire to do so,” said Lydia Boussour, lead U.S. economist for Oxford Economics.
Boussour said she expected GDP in the current April-June period would be around 13% and the gains this quarter will allow the economy to recoup all of the output lost during the recession. With the first quarter advance, GDP is just 0.9% below the level in the fourth quarter of 2019, before the country’s longest economic expansion ended in the first quarter of 2020.
Many economists are forecasting the economy will grow between 6% and 7% this year, which would be the strongest performance since a 7.2% surge in 1984, another year when the economy was recovering from a deep recession. But Oxford Economics is forecasting growth this year of around 7.7%. That would be the strongest annual gain sine 1951.
The 6.4% first quarter performance represented an improvement after GDP growth slowed to a 4.3% rate in the final three months of last year, a time when rising coronavirus cases and waning government support raised fears that the country could tip back into recession.
But passage of nearly $3 trillion in extra government support in December and March, as well as wide-spread introduction of vaccines, has allowed thousands of businesses to reopen and millions of people to go back to work.
Thursday’s report was the government’s second of three looks at GDP performance in the first quarter.
The report showed that consumer spending grew at a sizzling annual rate of 11.3%, even better than the 10.7% estimate made a month ago. Business investment spending was also up and residential construction, which has been a standout performer over the past two years, grew at 12.7% annual rate, better than the 10.8% gain first estimated.
However, those areas of stronger growth were offset by weakness in U.S. export sales, which fell at an annual rate of 2.9%, larger than the 1.1% rate of decline reported a month ago.
While exports were falling, imports were rising with the U.S. economy emerging from the pandemic recession more quickly than many other parts of the world.
With strong demand from U.S. consumers, imports rose at a 6.7% annual rate in the first quarter. The trade deficit, the gap between imports and exports, widened in the first quarter and subtracted 1.2 percentage points from overall growth.
Business inventories were also drawn down in the first quarter as companies were not able to keep up with rising demand. The drop in inventories subtracted 2.788 percentage points from first quarter growth. However, that should translate into stronger growth in the second quarter as businesses work to restock empty store shelves.