The US economy is on track to deliver outstanding growth in 2021, with GDP growth forecast to exceed 13% in the second quarter of the year.
The Advance GDP release in the United States showed that the world’s largest economy grew by 6.4% in the first quarter of the year. This performance was impressive despite somehow being below the 6.8% that the market expected, and especially impressive when we consider that the world still has to deal with the COVID-19 pandemic.
The good news continues. According to estimates, the economy will likely grow at 7.5% for the full year— a performance not seen since 1951. And it’s being led by consumer spending.
What Has Lifted the US Economy?
US economic growth dwarfs anything else seen in the advanced economies. And because we talk about the USA being the largest economy in the world, such growth rates will likely lead to a widening economic gap in the years ahead.
The first quarter’s growth was fueled by spending on durable goods, including a 51.5% surge in spending on autos. Recreational goods rose by 28.1% while household furnishings increased by 45.2%. Nondurable goods also revived, growing by 14.4% on an annualized basis, with the spending spree being led by the strongest consumer spending since the Second World War.
This makes sense if we think about the fiscal stimulus delivered by both the Trump and Biden administrations. Households received checks (or free money) and a big part of it ended up in the real economy.
Moving forward, the economic expansion will likely continue in the next quarter. America is preparing to lift restrictions as the vaccination effort takes the country closer to herd immunity.
Since the Biden administration’s stimulus came in the second half of the first quarter, and savings rates are high, US households should still be sitting on a pile of cash. Strong jobs in the second quarter should further boost the economic boom while consumers are willing to spend.
Estimates put growth for the second quarter above 13% on an annualized basis, which is way above any of the USA’s G10 peers. If there was a recession in 2020, it’s long gone now.