Massive fiscal stimulus fires up US economy; labour market recovering

People wearing protective masks are seen in Times Square during the outbreak of the coronavirus disease in the Manhattan borough of New York City on March 25. US economic growth accelerated in the first quarter, fuelled by massive government aid to households and businesses, charting the course for what is expected to be the strongest performance this year in nearly four decades.

US economic growth accelerated in the first quarter, fuelled by massive government aid to households and businesses, charting the course for what is expected to be the strongest performance this year in nearly four decades.The US economy is rebounding more quickly compared to its global rivals, thanks to two additional rounds of Covid-19 relief money from Washington as well as easing anxiety over the pandemic, which has boosted domestic demand and allowed services businesses like restaurants and bars to reopen.The second-fastest gross domestic product growth since the third quarter of 2003, reported by the Commerce Department yesterday, left output just 0.9% below its level at the end of 2019.Economists expect a full recovery from the pandemic recession, which started in February 2020, in late 2023.The report is a boost for President Joe Biden as he celebrated 100 days in the White House.“In early 2021, the economy was served a strong cocktail of improving health conditions and rapid vaccinations along with a fizzy dose of fiscal stimulus and a steady flow of monetary policy support,” said Lydia Boussour, lead US economist at Oxford Economics in New York. “Looking ahead, we foresee the economy’s spring bloom turning into a summer boom.”GDP increased at a 6.4% annualised rate last quarter, the government said in its advance estimate for the first three months of the year.That followed a 4.3% growth rate in the fourth quarter.It was the biggest first-quarter increase in growth since 1984.Economists polled by Reuters had forecast GDP growth would increase at a 6.1% pace in the January-March period.Growth was powered by consumer spending, which increased at a 10.7% rate as households bought motor vehicles, furniture, recreational goods and electronics.Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.3% pace in the fourth quarter.Former President Donald Trump’s government provided nearly $3tn in relief money early in the pandemic, leading to record GDP growth in the third quarter of last year.That was followed by nearly $900bn in additional stimulus in late December.The Biden administration offered another $1.9tn rescue package in March, which sent one-time $1,400 checks to qualified households and extended a $300 unemployment subsidy through early September.The Federal Reserve on Wednesday acknowledged the burgeoning domestic activity, but the US central bank gave no sign it was ready to reduce its extraordinary support for the recovery.The rapidly accelerating economy could dampen enthusiasm among some moderate Democrats for Biden’s ambitious economic agenda.Biden on Wednesday unveiled a sweeping $1.8tn package for families and education in his first joint speech to Congress.Republicans oppose more stimulus, now worried about swelling debt.The new package and an earlier infrastructure and jobs plan total around $4tn, rivalling the annual federal budget.In a separate report yesterday, the Labor Department said initial claims for state unemployment benefits fell 13,000 to a seasonally adjusted 553,000 during the week ended April 24.Data for the prior week was revised to show 19,000 more applications received than previously reported.Though claims have dropped from a record 6.149mn in early April 2020, they remain well above the range of 200,000 to 250,000 that is viewed as consistent with a healthy labour market.There were 16.6mn people receiving unemployment benefits in the first week of April.“We’re still probably a couple years away from pre-pandemic employment levels, but based on the powerful economic momentum built up in the first quarter, we should return close to a fully-functioning economy in the second quarter,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia.