September 21, 2023

US economy surges in first quarter

President Joe Biden walks with his personal aide Stephen Goepfert along the Colonnade Friday
President Joe Biden walks with his personal aide Stephen Goepfert along the Colonnade Friday

The U.S. economy is showing signs of a strong recovery. The economy is measured to have grown at an annualized rate of 6.4 percent over the first quarter of 2021 due to the rollout of a nation-wide vaccination campaign – a part of President Biden’s American Rescue Plan – and household spending from previous federal stimulus passed at the end of 2020.

“Pre- [American Rescue Plan], and not ‘post’ is what’s really going to be reflected in the Q1 number,” Wendy Edelburg, Director of the Hamilton project at the Brookings Institution was reported as saying on Thursday.

Because of unprecedented fluctuation in the economy over the past year and an uncertain recovery trajectory, a more reliable economic measure may be quarterly growth rates. The U.S. economy grew at a quarterly rate of 1.6 percent.

What is clear is that this record growth – second only to the 7.5 percent growth seen last year and the most in more than four decades – would not have occurred without federal stimulus spending of more than $1.6 trillion; $0.6 trillion that arrived in the early months of 2021 and includes some of the stimulus passed under the Biden Administration, according to the Bureau of Economic Analysis (BEA), an agency at the Department of Commerce.

Because American consumers make up nearly 70 percent of total U.S. economic output, according to the BEA, economists are looking at changes in consumer spending – in broad terms from goods to services – and supply constraints, as signals for the economy’s trajectory.

As households as a whole have built up an estimated $2 trillion in savings from massive federal stimulus and limited spending opportunities, one concern is that additional stimulus combined with increased household spending will cause an increase in inflation as the economy opens back up.

While prices, as a measure of inflation, rose at a 2.3 percent annual rate over the first quarter – slightly above the Federal Reserve’s 2 percent goal – Jerome Powell, Chairman of the Fed, did not announce new changes to monetary policy on Wednesday; he was also reported as not expressing concern about near-term rises in inflation, according to the Financial Times.

As household spending and additional stimulus are expected to carry the U.S. economy to a strong recovery over the course of the year, a lot of uncertainty remains over what policies could eventually be passed in Biden’s jobs and families plans and therefore their impact on the economy.

The Washington Post previously reported on this story.

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