Restaurant workers wearing face masks, face masks and gloves prepare food during the reopening of iconic LA restaurant Pink’s Hot Dogs on March 1, 2021 in Los Angeles, California.
Frederic J. Brown | AFP | Getty Images
The U.S. economy came back to life in 2021, with growth in the first quarter set to defy even the most rosy expectations as another new influx of cash shoots up.
The production data on Monday showed that the sector was at its highest growth level since August 2018. The report from the Institute of Supply Management, in turn, helped to confirm the perception among economists that production at the start of the year was much better than the low single-digit growth that many had predicted at the end of 2020.
The Atlanta Federal Reserve, which tracks real-time data to estimate changes in gross domestic product, now points to a 10% gain for the first three months of the year. The GDP Nou instrument is usually volatile early in the quarter, then it becomes more accurate as the data rolls in during the period.
It comes on the heels of a report Friday that shows personal income rose 10% in January, largely thanks to the government’s $ 600 stimulus. Household wealth increased by nearly $ 2 billion for the month, while spending increased by only 2.4% or $ 340.9 billion.
These numbers, coupled with an eruption of nearly $ 4 billion in savings, have indicated that an economy is not only growing vigorously, but also one that is poised to continue on the path throughout the year.
“The V-shaped recovery in real GDP will remain V-shaped during the first half of this year and probably at the end of the year,” Ed Yardeni of Yardeni Research wrote in his daily note on Tuesday. “However, it will no longer be a ‘recovery’ after the first quarter, as real GDP will have fully recovered during the current quarter. After that, GDP will be in a ‘expansion’ in the record high area.”
Earlier, economists did not expect the US $ 21.5 billion economy to recover its pandemic-related losses by at least the second or third quarter of this year, if not later.
But a combination of systematic resilience, combined with previously unimaginable doses of fiscal and monetary stimulus, has helped accelerate recovery significantly. The last quarter of 2020, in which GDP increased by 4.1%, left the total amount of goods and services producing only $ 270 billion from the same period a year earlier, before Covid-19 struck.
“With strong federal fiscal support and continued vaccination progress, this year’s GDP growth may be the strongest we have seen in decades,” John Williams, president of the Federal Reserve, said in a speech in New York last week. .
In fact, there are questions about whether the Biden administration’s $ 1.9 billion spending plan is needed, at least to such an extent. An economy that plans to show its fastest growth rate since at least 1984 does not look like a very good candidate for more spending at a time when the federal government is expected to have a budget deficit of $ 2.3 billion this year .
Respondents to the ISM report pointed to rising prices and problems with supply chains, with one manager of electrical equipment, appliances and components remarking: “Things are out of control now. Everything is a mess, and we are seeing large-scale shortages. “
Markets have been worried lately that overheated growth could generate inflation, especially as the Federal Reserve keeps its foot on the policy pedal.
“Too much of a good thing is often just too much,” Yardeni wrote. “The economy is hot and will get hotter with the bonfire of fiscal and monetary insanity.”
A large area of weakness
To be sure, shortcomings remain in the economy. The most important among them is the gap in employment, especially in the service sector.
According to the Bureau of Labor Statistics, there were 8.6 million fewer workers from January than a year ago, just before the pandemic began threatening the US. About 4.3 million Americans left the workforce at that time.
In spite of a decline in the real unemployment rate from a pandemic peak of 14.8% to 6.3%, jobs in the hospitality sector fell by more than 3.8 million from a year ago and the unemployment rate for the industry is fixed at 15.9%, completely 10 percentage points higher than January 2020.
“The most striking issue about where we stand now has to be the labor market. We still have [nearly] 10 million jobs just missing, “said Troy Ludtka, a U.S. economist at Natixis. You will see a situation in the coming years if you look back at this moment, where official statistics on things like food insecurity, poverty and inequality are going to reach generational highs. ‘
Ludtka, however, sees the promise ahead, thanks in part to measures taken to address the ills of the current era.
“The good news is that we are bouncing back very quickly, and that is a sign of great promise,” he said. “We are going to see an economy after the pre-pandemic production levels, and we will see a situation in which unnecessary economic uncertainty is mitigated.”
There is even better news coming out of the labor market, which despite the gaps that remains, has recovered nearly 12.5 million non-farming jobs since the recovery began in May 2020.
In the first place, the postal administration is on the decline. Indeed, the employment network reports that the offers until February 12 are a seasonally adjusted 3.9% higher than February 1, 2020, using it as the baseline ahead of Covid. At the beginning of May 2020, the placements were lagging behind by 39%.
Economists are counting on pent-up claims that vaccinations and declining coronavirus numbers will contribute to growth. Non-farm payrolls for February are expected to show a profit of 210,000 when the BLS reports the numbers on Friday.
“You are going to see that the growth rates in the middle of the year are likely to be around 9%. This is how strong the reopening of the US economy will be towards the release of the pent-up demand by the domestic sector,” said Joseph Brusuelas, chief economist of RSM, said. “I do not expect the pent-up demand to be released to everyone this year. I expect it to take about two years to do so, mainly because households will be somewhat cautious about releasing cash.”
The extent to which Americans in expatriate countries will come rushing out of their homes if restrictions are lifted is indeed a matter of debate.
Spending on the services part of the economy ‘is just another beast’ than spending on goods that rose during the pandemic, said Liz Ann Sonders, chief investment strategist at Charles Schwab.
“The whole pent-up demand is overestimated, at least on the good side of the economy. If that’s anything, we’ll have a shortened demand on the good side,” Sonders said. “On the side of services … it doesn’t last long. If you miss four vacations, take one.”
As economic data continues to withstand Wall Street estimates – to some extent unseen in the pre-pandemic era, expectations are growing that the risk of growth is clearly upside down.
Michelle Meyer, U.S. economist at Bank of America Global Research, said consumers are showing tremendous resilience through the crisis that should continue into 2021, especially with more stimulus.
“The important factor is to get past the virus,” Meyer said. “Even if it’s equal, the economy is pretty strong.”