The first quarter delivered strong economic growth in the U.S., setting the stage for what could be a “boom year” as the recovery from the coronavirus pandemic drives consumer spending.
The Commerce Department reported Thursday that gross domestic product grew 6.4% for the first three months of the year on an annualized basis. Economists had been expecting a 6.5% gain.
The economy has now expanded for three straight quarters after the severe contraction of the second quarter of 2020 when the pandemic gripped the country. Armed with government relief checks, consumers drove the first-quarter surge in output.
The first-quarter GDP report “signals the economy is off and running and it will be a boom-like year,” said Mark Zandi chief economist at Moody’s Analytics. “Obviously, the American consumer is powering the train and businesses are investing strongly.”
Consumer spending, which accounts for 70% of GDP, rose 2.6% in the first three months the quarter, with a 5.4% increase in purchases of goods accounting for most of the growth. Spending on services rose by 1.1% but economists expect it to pick up as more people are vaccinated and services that were off-limits come back to life.
Gregory Daco, chief U.S. economist at Oxford Economics, said his firm estimates GDP will grow 13% in the second quarter and 7.5% for the year, the best performance since 1951.
“This may be the tip of the iceberg,” he told The New York Times. “I think we will see much stronger momentum into summer as health conditions continue to improve, policy support remains in place and employment strengthens.”
The first-quarter growth left the economy within 1% of the pre-pandemic peak it reached in late 2019. The increase would have been even larger had it not been for a fall in inventories, said Michael Gapen, chief U.S. economist at Barclays, noting that supply chain constraints and the semiconductor shortage have reduced production.
“We’re at the opening stages of what could be a very strong six to nine months for the U.S. economy as it emerges from the pandemic,” he said. “The best is still yet to come.”