The United States economy is recovering surprisingly well from the crisis that swept through the country last year on the heels of the coronavirus, costing tens of millions of Americans their jobs and companies.
The economy expanded at a robust 6.4 percent annual pace in the third quarter, according to the government, and the current quarter is expected to be even better. Last week, the number of people receiving unemployment benefits — a rough reflection of layoffs — fell to its lowest level since the pandemic began. And, according to the National Association of Realtors, more Americans signed contracts to purchase homes in March, indicating a robust housing demand as summer approaches.
According to economists, widespread vaccinations and falling viral cases, the reopening of more companies, a massive influx of federal aid, and stable employment gains could help maintain steady development. They expect the economy to grow by about 7% in 2021, which will be the highest calendar-year rise since 1984.
Employers in the United States gained 916,000 jobs in March, the most since August. Meanwhile, retail spending has increased, industrial production has increased, and business sentiment has hit its highest level since the outbreak started.
“All of the motors of the economy are revving up,” said Gregory Daco, chief economist at Oxford Economics. “We have a changing health climate, sufficient fiscal stimuli, and we are beginning to see rebounding employment.”
Given the extent of the harm caused on the economy by the pandemic starting in March of last year, the pace at which it has recovered has been especially impressive. With enterprises virtually closed, the economy contracted at a peak annual rate of 31 percent in the April-June quarter of last year before rebounding rapidly in the following months.
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The resurgence of the world’s largest economy, the United States, is assisting in leading the developing world out of recession. In Europe, for example, the rebound has been slowed by lower government aid and delayed vaccine rollouts, which have resulted in longer lockdowns. According to Berenberg Bank economists, the 19 countries that use the euro currency contracted in the first quarter.
Despite its recent gains, the US economy still has a long way to go. More than 8 million workers have been destroyed as a result of the pandemic. And the recovery is also uneven: In the last year, most college-educated and white-collar workers have been able to work from home. Many have also accumulated deposits and increased their income as a result of increasing home prices and a record-breaking stock market, which has risen more than 80% since March of last year.
In comparison, employment losses have disproportionately impacted low-wage jobs, ethnic minorities, and those without a formal degree. Furthermore, many women, especially working mothers, have had to leave the workforce to care for their children.
The government reported Thursday that the nation’s gross domestic product — overall production of goods and services — accelerated in the January-March period, up from a 4.3 percent annual increase in the fourth quarter of 2020.
According to some economists, growth in the current April-June cycle could approach a 10% annual rate or higher, owing to an increase in people commuting, shopping, eating out, and otherwise resuming their spending habits.
The record-level government investment that is set to pour into the economy is a big factor for the improved outlook. A $1.9 trillion bill approved by Congress in March by President Joe Biden included, among other things, $1,400 stimulus packages for most adults. In addition, Biden is planning two new massive stimulus plans: a $2.3 trillion infrastructure programme and a $1.8 trillion initiative in youth, family, and education, all of which the president promoted in his first speech to a joint session of Congress on Wednesday night.
The Federal Reserve’s ultra-low interest-rate programme, intended to stimulate borrowing and investment, has also been a major source of support. Indeed, the economy is predicted to develop at such a rapid pace that some analysts are concerned that it will spark inflation. This is due, in part, to increasing demand, which has resulted in production bottlenecks and shortages of some materials, most prominently semiconductors, which are vital to the automotive, technology, and medical device industries, among others.
However, at a news conference on Wednesday, Chair Jerome Powell expressed his belief that any increase in inflation would be temporary. In addition, he said that the Fed would like to see a significant and sustainable recovery before withdrawing its economic assistance. Meanwhile, Powell made it clear that the central bank isn’t even close to ending its ultra-low-interest-rate policies.
Companies that service them prosper as more market limits are relaxed as more customers go out to buy and eat out. McDonald’s, for example, had a significant increase in sales last year, even surpassing the same time in 2019, long before the pandemic shook the economy. Similarly, the majority of big technology firms have posted respectable profits. Apple, for example, saw sales more than double in the January-March timeframe due to strong demand for the iPhone and other business devices.
In New York City, Mayor Bill de Blasio said that the city will be “fully reopened” by July 1. “We are excited for shops to open, for companies to open, for offices to open, for theatres to open,” he added.
Consumer spending, which accounts for more than two-thirds of the economy, increased at a 10.7 percent annual rate in the January-March period, a major acceleration since spending had cooled to a 2.3 percent annual growth in the final three months of 2020, according to Thursday’s GDP report. Employers are expected to keep recruiting to keep up with client demand while shoppers spend more freely. Daco believes that employment gains in several months this year will double the almost 1 million added in March.
As American consumers’ spending has increased in recent months, they have purchased much more physical items than resources such as haircuts, plane tickets, and restaurant meals: Last year, spending on goods increased at a roughly 24 percent annual rate, while spending on services increased at a rate less than 5 percent. This gap is expected to change as more restaurants and entertainment venues reopen and people move and congregate more. Disneyland, for example, will reopen to California residents on Friday with reduced space.
Andrew Song, whose family owns Kwan’s Deli across the street from Atlanta’s Centennial Olympic Park, is now feeling optimistic despite losing much of his company last year when office employees remained at home. And if office staff do not always return, the deli should be able to support itself, according to Song, due to an increase in hotel visitors, conference goers, and tourists. He recently called a recently laid-off employee back to work.
Song attributes the recovery, at least in part, to an increase in vaccines, which he believes has made Americans more relaxed venturing out.
“More visitors are on their way,” he predicted. “Some old names have returned to the restaurant.”
Consumers were not the only ones who drove last month’s rise. Business expenditure increased at a roughly 10% annual pace, representing a surge in equipment spending. And, following two consecutive increases, government spending increased at a 6.3 percent annual rate, reflecting weakness at the state and local levels as the recession reduced tax revenue.
Businesses did slow their inventory restocking rate, which reduced the quarter’s growth by 2.6 percentage points. A growing trade deficit has slowed growth by 0.8 percentage point.
However, Mark Zandi, chief economist at Moody’s Analytics, indicated that even that vulnerability masked proof of strength: with the United States’ recovery ahead of most of the rest of the planet, Americans are spending more than shoppers in other countries.
“The GDP number was robust, indicating that the economy is off to a good start,” Zandi added. “Consumers are actively purchasing.”