US economy accelerates in Q1 and jobless claims edge lower

Washington

US economic growth accelerated in the first quarter, fuelled by massive government aid to households and businesses, charting the course for what is expected will be the strongest performance this year in nearly four decades.

Gross domestic product increased at a 6.4 per cent annualised rate last quarter, the Commerce Department said on Thursday in its advance estimate of GDP for the first three months of the year. That was the second-fastest GDP growth pace since the third quarter of 2003 and followed a 4.3 per cent rate in the fourth quarter.

The US economy is rebounding more quickly compared to its global rivals, thanks to two additional rounds of Covid-19 relief money from Washington as well as easing anxiety over the pandemic, which has boosted domestic demand and allowed services businesses like restaurants and bars to reopen.

Still, the economy remains at least a couple of years away from fully recovering from the pandemic recession, which started in February 2020.

Former president Donald Trump's government provided nearly US$3 trillion in relief money early in the pandemic, leading to record GDP growth in the third quarter of last year. That was followed by nearly US$900 billion in additional stimulus in late December.

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President Joe Biden's administration offered another US$1.9 trillion rescue package in March, which sent one-time US$1,400 cheques to qualified households and extended a US$300 unemployment subsidy through early September.

The Federal Reserve on Wednesday acknowledged the burgeoning domestic activity, but the central bank gave no sign that it was ready to reduce its extraordinary support for the recovery.

The economy continued to power ahead early in the second quarter, with consumer spending vaulting to a 14-month high in April, thanks to the fiscal stimulus and the expansion of the vaccination programme to all American adults. Americans have accumulated at least US$2 trillion in excess savings.

Many economists expect that the economy will fully recover from the recession in late 2023. They forecast growth this year could top 7 per cent, which would be the fastest since 1984.

The rapidly accelerating economy could dampen enthusiasm among some moderate Democrats for Mr Biden's ambitious economic agenda.

On Wednesday, he unveiled a sweeping US$1.8 trillion package for families and education in his first joint speech to Congress. Republicans oppose more stimulus, now worried about swelling debt.

The new package and an earlier infrastructure and jobs plan total around US$4 trillion, rivalling the annual federal budget.

There are concerns among some economists that the massive government funding could ignite inflation.

Many economists, including Fed chairman Jerome Powell expect higher inflation will be transitory, arguing that the labour market remains 8.4 million jobs below its peak in February 2020.

A separate report from the Labor Department on Thursday showed 553,000 people filed for state unemployment benefits during the week ended April 24, compared to 566,000 in the prior period.

Although initial jobless claims have dropped from a record 6.149 million in early April 2020, they remain well above the 200,000 to 250,000 range viewed as consistent with a healthy labour market. REUTERS