10% GDP progress? The US economic system is on hearth and will likely be much more excited

Restaurant workers wearing face shields, face masks and gloves prepare food at the iconic LA restaurant Pink’s Hot Dogs reopening March 1, 2021 in Los Angeles, California.

Frederic J. Brown | AFP | Getty Images

The US economy came back to life in 2021. The growth in the first quarter should defy even the rosiest of expectations, as a further new influx of money looms is to be expected.

Monday’s production data showed the sector is seeing its highest level of growth since August 2018. This report from the Institute of Procurement Management, in turn, confirmed economists’ view that production at the beginning of the year is far better than the low single-digit growth many had previously forecast in late 2020.

The Atlanta Federal Reserve, which tracks real-time data to estimate changes in gross domestic product, now reports 10% growth for the first three months of the year. The GDPNow tool is generally volatile at the beginning of the quarter and then becomes more accurate as the data comes in over the period.

This follows a report released Friday that showed personal income rose 10% in January, largely thanks to the government’s $ 600 stimulus checks. Household wealth rose nearly $ 2 trillion during the month, while spending rose just 2.4%, or just $ 340.9 billion.

Those numbers and a surge in savings of nearly $ 4 trillion indicated that the economy is not only growing strongly, but is poised to continue down this path through the year.

“The V-shaped recovery in real GDP will remain V-shaped for the first half of the year and likely through the end of the year,” wrote Ed Yardeni of Yardeni Research in his daily note on Tuesday. “However, there will be no ‘recovery’ after the first quarter as real GDP has fully recovered in the current quarter. After that, GDP will be at record levels in an ‘expansion’.”

The Economist hadn’t previously expected the $ 21.5 trillion economy to recover its pandemic-induced losses by at least the second or third quarter of this year, if not later.

However, a combination of systematic resilience and previously unimaginable doses of fiscal and monetary stimulus has helped accelerate the recovery significantly. In the final quarter of 2020, when GDP rose 4.1%, the total number of goods and services produced was just $ 270 billion less than a year earlier, before Covid-19 hit.

“With strong federal government support and continued advances in vaccination, this year GDP growth could be the strongest we’ve seen in decades,” said John Williams, president of the New York Federal Reserve, in a speech in the last week.

Indeed, questions remain as to whether the Biden government’s spending plan of $ 1.9 trillion is needed at least on this scale. An economy poised to show its fastest annual growth rate since at least 1984 doesn’t seem like a very good candidate for spending more when the federal government expects a budget deficit of $ 2.3 trillion this year.

Respondents to the ISM report said prices and supply chain issues have risen sharply. One electrical equipment, device and component manager noted, “Things are out of control now. Everything is a mess and we are seeing widespread bottlenecks.”

Markets have recently been concerned that overheated growth could lead to inflation, especially with the Federal Reserve remaining on the political pedal.

“Too much good is often just too much,” wrote Yardeni. “The economy is hot and is getting hotter with the bonfire of fiscal and monetary madness.”

A major weak point

Of course, weaknesses remain in the economy. Of paramount importance is the employment gap, particularly in the service sector.

As of January, 8.6 million fewer were employed than a year ago, just before the pandemic threatened the US, according to the Bureau of Labor Statistics. Approximately 4.3 million Americans have left the workforce during that time.

Despite a fall in the overall unemployment rate from a pandemic high of 14.8% to 6.3%, employment in the hospitality industry is down more than 3.8 million year over year and the unemployment rate in the industry is wholly at 15.9% 10 percentage points higher than in January 2020.

“The most noticeable problem with our current position has to be the job market. We still have it [nearly] 10 million jobs that are simply missing, “said Troy Ludtka, US economist at Natixis.” You will see a situation in the years to come looking back at that moment when official statistics on things like food insecurity, poverty and inequality will hit generation highs. “

Ludtka sees a promise, however, thanks in part to the measures that have been taken to address the evils of the current era.

“The good news is that we are recovering very quickly and that is a sign of great promise,” he said. “We’re going to bring an economy back to pre-pandemic levels, we’re going to see a situation where unnecessary economic uncertainty is reduced.”

There is even some better news from the labor market, which despite the remaining gaps since the recovery began in May 2020, has regained nearly 12.5 million non-farm payroll jobs.

For one thing, job postings are on the rise. Employment Network In fact, listings are reported to be up 3.9% seasonally adjusted from February 1, 2020 through February 12, which is used as a pre-Covid basis. At the beginning of May 2020, bookings were 39% below the initial value.

Economists expect pent-up demands that vaccinations and falling coronavirus numbers will boost employment growth. Nonfarm payrolls for February are expected to grow 210,000 when the BLS reports the numbers on Friday.

Questions of demand

“You will see growth rates of probably close to 9% by the middle of the year. That is how strong the reopening of the US economy will be given the release of pent-up demand from the household sector,” said Joseph Brusuelas, chief economist at RSM. “I don’t expect the pent-up demand to be released this year. I expect it will take about two years, largely because households will be a little cautious about releasing cash.”

Indeed, the extent to which Americans in restricted states will rush outside of their homes when the restrictions are lifted is debatable.

Spending on the service sector of the economy “is just a different beast” than spending on goods that boomed during the pandemic, said Liz Ann Sonders, chief investment strategist at Charles Schwab.

“All of the pent-up demand is overvalued, at least on the commodity side of the economy. If anything, we will have pent-up demand on the commodity side,” said Sonders. “On the service side … it doesn’t last long. If you miss four vacations, take one.”

With economic data continuing to contradict Wall Street estimates – to an extent not seen in pre-pandemic times – expectations rise that growth risk is clearly on the upside.

Michelle Meyer, U.S. economist at Bank of America Global Research, said consumers have shown tremendous resilience to the crisis that should carry over into 2021, especially with further stimulus.

“The important factor will be to overcome the virus,” said Meyer. “If all else is the same, the economy is on pretty strong foundations.”