WASHINGTON—Powered by consumers and fueled by government aid, the US 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-percent 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 aid and healthy job gains should help sustain steady growth. For 2021 as a whole, they expect the economy to expand around 7 percent, which would mark the fastest calendar-year growth since 1984.
As American consumers have stepped up their spending in recent months, they have consumed physical goods far more than they have services, like haircuts, airline tickets and restaurant meals: Spending on goods accelerated at an annual pace of nearly 24 percent last quarter; services spending rose at a rate below 5 percent.
But now, that disparity will likely shift as more restaurants and entertainment venues reopen and people look to spend more on experiences and less on tangible items. On Friday, for example, Disneyland will reopen, with limited capacity, to California residents.
Andrew Song, whose family owns Kwan’s Deli across from Atlanta’s Centennial Olympic Park, is finally feeling hopeful after having lost most of his business last year as office workers stayed home. The deli should be able to sustain itself, Song said, from a rise in hotel guests, convention goers and tourists, even if office workers don’t all return. Recently, he called a laid-off employee back to work.
Song credited the rebound, at least in part, to the rise in vaccinations, which he thinks has made Americans more comfortable about venturing out.
“More tourists are coming,” he said. “We’re seeing some familiar faces back inside the restaurant.”
Online sites that have capitalized on goods purchases during the pandemic—from Amazon to Etsy to eBay—are under pressure to show they can sustain accelerating growth, even as consumers look more toward services and less on goods. So far, Amazon, the dominant site by far, is hardly showing signs of slowing down. On Thursday, it reported that its first-quarter profit more than tripled from a year ago, fueled by online shopping.
The speed of the rebounding US economy has been particularly striking given the depth of damage the pandemic inflicted on it beginning last year. With businesses all but shut down, the economy contracted at a record annual pace of 31 percent in the April-June quarter of last year before rebounding sharply in the subsequent months.
The bounce-back has been swift. In March, employers added 916,000 jobs—the biggest burst of hiring since August. Meantime, retail spending has surged, manufacturing output is up and consumer confidence has reached its highest point since the pandemic began.
“We are seeing all the engines of the economy rev up,” said Gregory Daco, chief economist at Oxford Economics. “We have an improving health environment, fiscal stimulus remains abundant and we are starting to see rebounding employment.”
The renewed strength in the United States—the largest economy—is helping lead the developed world out of recession. In Europe, for instance, a recovery has lagged because of smaller government aid and slower vaccination rollouts that have prolonged lockdowns. Economists at Berenberg Bank estimate that the 19 countries that use the euro currency actually contracted in the first quarter.
For all the US economy’s gains, it still has a long way to go. More than 8 million jobs remain lost to the pandemic. And the recovery remains sharply uneven: Most college-educated and white-collar employees have been able to work from home over the past year. Many have even built up savings and expanded their wealth from rising home values and a record-setting stock market, which has rocketed more than 80 percent from March of last year.
By contrast, job cuts have fallen heavily on low-wage workers, racial minorities and people without college educations. In addition, many women, especially working mothers, have had to leave the work force to care for children.
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-percent annual gain in the last quarter of 2020. Some economists say growth in the current April-June period could reach a 10-percent 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 federal 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, designed 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. AP
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