Booming recovery still gaining momentum
APR. 30, 2021
Source: Department of Labor
Real GDP for the first quarter was largely in line with expectations, rising by 6.4 percent on the back of big increases in personal consumption and capex. This represents a significant improvement in both magnitude and breadth from the 4.3 percent rise in Q4 and brings total output to within 1.0 percent of the 2019 peak.
Moreover, the momentum that built again in the first three months of the year does not appear to be waning. Initial jobless claims fell by another 13,000 last week to bring the cumulative decline since the end of March to 176,000, the biggest monthly drop since last summer. The recovery has been driven to this point by massive stimulus and the loosening of lockdown restrictions, but it will be carried from here to a large degree by the rapidly improving labor market.
And even if this were simply a stimulus-driven sugar high, it should be obvious by now that the rush isn’t going away anytime soon. The FOMC made it clear Wednesday afternoon that it is still not close to paring its quantitative easing program or to lifting short-term interest rates while President Biden last night unveiled a new fiscal support package amounting to $1.8 trillion over the next ten years. With the Fed and the White House focused to varying degrees on structural issues – note the recent comments on inequality from both the president and the Fed chair – it is likely to be some time before policy is cyclically restrictive. The real GDP growth rate in the first quarter ranks among the strongest of the last two decades, but it is unlikely to appear to be such an outlier by the time that this cycle runs its course.
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