WASHINGTON — Powered by consumers and fueled by government aid, the U.S. economy is achieving a remarkably fast recovery from the recession that ripped through the nation last year on the heels of the coronavirus and cost tens of millions of Americans their jobs and businesses.
The economy grew last quarter at a vigorous 6.4% annual rate, the government said Thursday, and expectations are that the current quarter will be even better. The number of people seeking unemployment aid — a rough reflection of layoffs — last week reached its lowest point since the pandemic struck. And the National Association of Realtors said Thursday that more Americans signed contracts to buy homes in March, reflecting a strong housing market as summer approaches.
Economists say that widespread vaccinations and declining viral cases, the reopening of more businesses, a huge infusion of federal spending and healthy job gains should help sustain steady growth. For 2021 as a whole, they expect the economy to expand close to 7%, which would mark the fastest calendar-year growth since 1984.
The economic gains have become increasingly evident in recent weeks. In March, U.S. employers added 916,000 jobs — the biggest burst of hiring since August. At the same time, retail spending has surged, manufacturing output is up and consumer confidence has reached its highest point since the pandemic began.
The speed of the rebounding economy has been particularly striking given the scope of damage the pandemic inflicted on it beginning in March of last year. With businesses all but shut down, the economy contracted at a record annual pace of 31% in the April-June quarter of last year before rebounding sharply in the subsequent months.
In its report Thursday, the government said the nation’s gross domestic product — its total output of goods and services — accelerated in the January-March quarter from a 4.3% annual gain in the last quarter of 2020. It was the first of three estimates of growth last quarter; the government will revise the figure twice in the coming weeks.
Some economists say growth in the current April-June period could reach a 10% annual pace or more, driven by a surge in people traveling, shopping, dining out and otherwise resuming their spending habits.
A major reason for the brightening expectations is the record-level spending that is poised to flow into the economy. A $1.9 trillion package that President Joe Biden got through Congress in March provided, among other rescue aid, $1,400 stimulus payments to most adults. On top of that, Biden is proposing two additional huge spending plans: a $2.3 trillion infrastructure package and a $1.8 trillion investment in children, families and education that the president promoted Wednesday night in his first address to a joint session of Congress.
The Federal Reserve’s ultra-low interest-rate policy, which is intended to encourage borrowing and spending, has provided significant support, too. In fact, the economy is expected to expand so fast that some economists have raised concerns that it could ignite inflation. In part, this is because stronger demand has caused supply bottlenecks and shortages of some components, notably semiconductors, which are critical to the auto, technology and medical device industries, among others.
At a news conference Wednesday, though, Chair Jerome Powell reiterated his confidence that any surge in inflation would prove temporary. And he said the Fed wants to see a substantial and sustained recovery before it would consider withdrawing its economic support. In the meantime, Powell made clear, the central bank isn’t even close to beginning a pullback in its ultra-low rate policies.
The vigor of the rebounding U.S. economy has been particularly striking given the scope of damage the pandemic inflicted on it beginning in March of last year. With businesses all but shut down, the economy contracted at a record annual pace of 31% in the April-June quarter of last year before rebounding sharply in the subsequent months.
“The economy is on fire,” Sung Won Sohn, a finance and economics professor at Loyola Marymount University, said before Thursday’s GDP report was released. “It is being fueled by the vaccine, which is the best economic stimulus we have, plus massive government spending.”
Thursday’s GDP report showed that consumer spending, which accounts for more than two-thirds of the economy, surged at a 10.7% annual rate in the January-March quarter, a significant acceleration after spending had slowed to a 2.3% annual gain in the final three months of 2020.
Business investment rose at a strong rate of nearly 10%, reflecting a burst of spending on equipment. The residential sector, a standout performer in the last year thanks to ultra-low mortgage rates, grew at a roughly 11% annual rate in the first quarter, still solid but down from the fourth quarter. Government spending grew at a 6.3% annual rate after two straight declines that had reflected weakness at the state and local level as the recession shrank tax revenue.
Businesses did slow their pace of inventory restocking in the January-March quarter, which shaved 2.6 percentage points from the quarter’s growth. And a rising trade deficit diminished growth by 0.8 percentage point.
Mark Zandi, chief economist at Moody’s Analytics, said before Thursday’s GDP report was released that all signs point to an economic boom this year, fueled by heavy government support and a flood of pent-up consumer demand as the economy further reopens.
“This should be a gangbuster year,” Zandi said. “I have been forecasting the economy for almost 30 years, and I can’t remember a time when I have been as confident as I am today.”