US economic growth is likely to have accelerated in the first quarter, driven by massive government aid to households and businesses. This sets the course for what is likely to be the strongest performance this year in almost four decades.

The United States’ economy is recovering faster than its global rivals thanks to two additional COVID-19 bailouts from Washington, as well as a reduction in pandemic fear that has boosted domestic demand and enabled service businesses like restaurants and bars to rift.

Although the expected revival in gross domestic product in the final quarter would leave production just below its level in late 2019, the economy remains at least a few years away from fully recovering from the pandemic recession that began in February 2020.

The Department of Commerce will release its snapshot of GDP growth for the first quarter on Thursday at 8:30 a.m. EDT (1230 GMT).

“It’s going to be a solid GDP number,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “It’s a small milestone, in many cases, that we need to hit before we can say we have fully recovered from the recession.”

According to a Reuters poll of economists, the economy is likely to have grown 6.1% on an annual basis in the first three months of the year. This would be the second fastest rate of GDP growth since the third quarter of 2003 and would follow a rate of 4.3% in the fourth quarter.

However, the survey was conducted before March durable goods orders, goods trade deficit, and wholesale and retail inventory data. The economists at Goldman Sachs have initially lowered their GDP growth estimate based on the data on durable goods by a tenth of a percentage point to 7.4%.

The estimate based on the goods trade deficit and inventory data was then increased to 7.7%.

Former President Donald Trump’s administration provided nearly $ 3 trillion in aid at the start of the pandemic, sparking record GDP growth in the third quarter of 2020. Additional incentives of nearly $ 900 billion followed in late December. President Joe Biden’s administration offered another $ 1.9 trillion bailout in March that sent one-time checks of $ 1,400 to skilled households and an unemployment benefit of $ 300 through early September. Dollars granted.

The Federal Reserve acknowledged burgeoning domestic activity Wednesday, but the US Federal Reserve gave no indication that it was ready to cut its extraordinary support for the recovery. Continue reading

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The rapidly accelerating economy could dampen some moderate Democrats’ enthusiasm for Biden’s ambitious economic agenda. Biden unveiled a comprehensive $ 1.8 trillion package for families and education in his first joint speech to Congress on Wednesday. Republicans are against more incentives and are now concerned about the growing debt. The new package and a previous infrastructure and employment plan are worth around $ 4 trillion, competing with the annual federal budget.[nL1N2ML15K}[nL1N2ML15K}[nL1N2ML15K}[nL1N2ML15K}

Some economists fear that massive government funding could boost inflation. Many economists, including Fed Chairman Jerome Powell, anticipate temporary higher inflation, arguing that the labor market will remain 8.4 million jobs below its February 2020 high.

According to a Reuters poll, a separate Labor Department report on Thursday is expected to see 549,000 people claiming state unemployment benefits last week. Although claims have fallen from a record 6.149 million in early April 2020, they remain well above the 200,000-250,000 range that is considered compatible with a healthy labor market. Approximately 17.4 million Americans received unemployment benefits in early April.

At the beginning of the second quarter, the economy continued to prevail. Consumer confidence hit a 14-month high in April thanks to fiscal stimulus and the expansion of the COVID-19 vaccination program to all American adults. That helps unleash pent-up demand.

Americans have accumulated at least $ 2 trillion in excess savings. Many economists expect the economy to fully recover from the recession by the end of 2023. They expect growth could top 7% this year, which would be the fastest since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

“Assuming vaccines against new variants of the virus remain effective, the economy should see significant growth for the remainder of the year,” said Kevin Cummins, chief US economist at NatWest Markets in Stamford, Connecticut.

“The combination of extraordinarily high fiscal stimulus, extremely accommodative monetary policy, an extremely positive supply shock as the economy reopens, and a pile of excess savings to support consumption makes us extremely optimistic about GDP growth in 2021 and 2022.”

The growth in the first quarter was likely driven by consumer spending, which is expected to accelerate after almost holding back in the last three months of 2020. Another quarter of double-digit growth is expected for equipment business spending as well as recovery from investments in non-residential structures such as mine exploration, shafts and wells.

Residential investment is likely to have contributed to GDP growth for the third quarter in a row. However, trade is likely to be a drag for the third straight quarter as some of robust domestic demand has been saturated by imports. Heavy consumption meant fewer unsold goods in inventory, which likely resulted in inventory being subtracted from GDP growth.

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