Economic Outlook - May 2021
- The Commerce Department reported that real gross domestic product (GDP) grew at an annualized rate of 6.4% in the first quarter of 2021. This initial reading was slightly below expectations but represents an acceleration from the 4.3% growth in the fourth quarter of 2020. The increase reflects a 10.7% jump in consumer spending and positive contributions from fixed investment and government spending, which were partly offset by decreases in private inventory investment and exports. Real GDP has now retraced approximately 96% of its pandemic-era decline and is set to rise into record-high territory during the second quarter. We anticipate real GDP growth in the range of 10%-11% for the second quarter driven by personal consumption expenditures and the rebuilding of inventories by businesses.
- The U.S. consumer is flush with cash. The recently released personal income report showed March’s installment of Economic Impact Payments (EIP) totaled $337 billion, or $4.0 trillion at an annual rate. During March, personal income climbed to a record $24.2 trillion, which is 26.6% above its February 2020 pre-pandemic record high. Personal saving rose to $6.0 trillion during March, getting close to last April’s record $6.4 trillion. These savings will provide ample purchasing power for the remainder of the year.
- The Bureau of Labor Statistics announced that nonfarm payrolls increased by 266,000 in April. While seasonal factors may be in play, the number was much less than the one million gain that was expected and in contrast with the 742,000 additions reported by ADP. The unemployment rate remained essentially flat at 6.1%, and average hourly wages increased 0.3% from April of last year, a large decline from the 4.2% year-on-year rise for March. The federal stimulus may be enabling workers to remain on the sidelines.
- The Federal Open Market Committee (FOMC) last met on April 27-28, and members voted to leave monetary policy unchanged. The target range for the federal funds rate will remain at 0 to 1/4 percent, and the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month. Chairman Jerome Powell reiterated the Federal Reserve’s intention that achieving full employment is its top priority, even if it comes at the expense of inflation moving above its 2% target. The next FOMC meeting takes place on June 15-16.
Sources: Bloomberg, FACTSET, WSJ, U.S. BEA, U.S. BLS, Federal Reserve, Instit. For Supply Mgmt, ISI, IBD, Yardeni Research
Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.
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