UK Markets closed

US recovery accelerates as growth, hiring rebound

Heather Scott and Chris Stein
·4-min read

The US recovery from the destruction inflicted by Covid-19 is accelerating amid widespread vaccinations and massive government stimulus, with data released on Thursday showing another jump in growth and further signs lost jobs are being restored.

Robust consumer spending and a flood of federal money helped boost annualized GDP growth in the first quarter to 6.4 percent, the Commerce Department said.

And last week, new applications for unemployment benefits saw their third straight weekly decline, according to the Labor Department, a sign rehiring is getting underway in the world's largest economy.

"America is on the move again. Turning peril into possibility. Crisis into opportunity. Setback into strength," President Joe Biden said in an address to Congress on Wednesday night, prior to the reports' release.

Biden, who already won approval for a $1.9 trillion pandemic rescue plan to aid families and businesses, has proposed two more massive packages totaling nearly $4 trillion, arguing they will create jobs and help the less wealthy while being paid for by taxes on the rich.

Even before those funds hit the US economy, the government was pumping out cash, and federal expenditures jumped nearly 14 percent in the first quarter of the year, according to the Commerce Department.

Consumers began to spend more freely in the January-March period, led by purchases of autos, homes and big-ticket consumer goods, as well as on services like hotels and restaurants, the report said.

However, the GDP data show signs of rising prices as well, which has spooked some economists and investors.

- Big bounce -

The annualized GDP measure showing how fast the economy would expand if the growth rate continued for a full year was the fastest first quarter gain since January-March 1984.

It came after 2020 saw a 3.5 percent contraction -- the worst since modern recordkeeping began in 1946.

Compared to the fourth quarter, GDP rose 1.6 percent after a 1.1 percent quarterly increase in the prior three months, the report said.

"In early 2021, the US 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," Greg Daco of Oxford Economics said in an analysis.

"Looking ahead, we foresee the US economy's spring bloom turning into a summer boom."

The IMF projects the United States will see overall growth of 6.4 percent this year, a forecast Biden hailed in his evening address.

"That will be the fastest pace of economic growth in this country in nearly four decades," he said.

- Transitory inflation? -

But business reopenings and increased spending also pushed prices higher, with a key inflation measure jumping 3.5 percent in the January-March period, compared to a rise of just 1.5 percent in the prior quarter, the Commerce Department reported.

Even excluding more volatile food and energy prices, the price index for personal consumption expenditures (PCE) rose 2.3 percent -- surpassing the Federal Reserve's 2.0 percent target.

Fed chief Jerome Powell on Wednesday tried to stomp out mounting concerns about inflation, saying price spikes in coming months are largely due to the bounceback from sharp declines seen in the early months of the pandemic.

Supply chain bottlenecks created by the economic restart from last year's shutdowns are also playing a role, but Powell insists that both factors are only transitory.

The Fed has pledged to keep its stimulative policies in place, including interest rates near zero, until employment has recovered and inflation exceeds its target for some time.

"We're making our way through an unprecedented series of events" including a global shutdown, Powell said Wednesday, noting that a jump in inflation caused by the reopenings will not prompt a change in policy.

- Recovering jobs -

After soaring into the millions in the early weeks of the Covid-19 pandemic and remaining in the high hundreds of thousands for the rest of 2020, the past three weeks have a brought marked declines in new applications for jobless benefits.

New filings for regular unemployment aid fell to 553,000, seasonally adjusted, in the week ended April 24, a new low since the mass layoffs began in March 2020, the Labor Department reported.

"The continuing decline shows an improving labor market as the economy moves towards a full reopening," Daniel Zhao of job search website Glassdoor said on Twitter.

However, more than 16.5 million people were receiving government unemployment aid under all programs as of the week ended April 10, though that was a drop of more than 845,000 from the previous week.

hs/cs