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Livesquawk - Strong US Growth Expected In Q1 Thanks To Cheques and Jabs
Strong US Growth Expected In Q1 Thanks To Cheques and Jabs

- Increase of 6.1% forecast (prev 4.3%)

- “Stimmies”, vaccinations, open stores spur consumers

- Dwindling inventories diminish optimism

- Data due Thursday at 12:30 GMT

 

By Eric Culp, European Editor

LiveSquawk News

@EricCulpLS

 

27 April 2021 | 17:20 GMT

 

Growth in the world’s largest economy is expected to show improvement yet again in the first quarter thanks to stimulus cheques from two different Washington administrations.

 

President Joe Biden and the Democrats controlling the upper and lower houses of the US government ushered in USD 1,400 payments as part of their USD 1.9 tln stimulus package, and more than 100 mln Americans received their money last month. Pay-outs courtesy of former President Donald Trump and a Republican-controlled upper house put USD 600 in the pockets of Americans in January.

 

An economists’ poll says US quarterly growth reached 6.1% in the first quarter following the 4.3% rise in the final three months of 2020.

 

“Stimulus payment fuelled consumer spending, coupled with robust residential construction activity resulting from a red-hot housing market, will give first-quarter GDP growth strong foundations,” said James Knightly, ING’s chief international economist. “On top of this, there is a rebound in oil and gas drilling on higher prices, while durable goods orders point to a very healthy contribution from investment in equipment and software.”

 

March durable good orders grew 0.5% on the month, which was well short of the market estimate of 2.3%. But retail sales were up 9.8%.

 

Knighly said the risks to the consensus for the headline GDP growth rate are to the upside and predicted a reading of 7.4%. Like many of his fellow analysts, he projected even stronger growth for the current quarter.

 

Jabs, reduced restrictions aid recovery

The US Covid-19 vaccination programme is in full swing, with more than 40% of Americans having already received at least one shot, according to the Centers for Disease Control and Prevention (CDC). The number of new cases is currently in decline, and a range of US states reopened many or all business sectors last quarter, which has boosted economic activity.

 

And the future looks even brighter for Americans: the CDC announced Tuesday that fully vaccinated people in the US no longer need to wear masks outdoors unless they are in a large crowd of strangers, a policy change likely to improve the national mood.

 

But despite all the good news, TD Securities expressed muted optimism about the first three months of the year. “Real GDP likely rose strongly, albeit not quite as strongly as in the consensus estimate due to a plunge in inventories (with spending outpacing output). We forecast a stronger 8% pace for growth in Q2.”

 

HSBC also pointed to dwindling stockpiles as an indication of cooler business activity. “The change in inventory accumulation may have subtracted around 1.5 percentage points from first-quarter GDP growth.”

 

Noting that it also expects GDP to underperform the forecast, HSBC said: “Consumer spending may have increased at a 9.3% rate, supported by economic reopening and a sizeable boost to disposable incomes from fiscal policy. Both business fixed investment and residential investment may have increased at similarly strong rates.”