Heating Up: US Economic Growth Sizzles In Strong First Quarter

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On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Senior Research Analyst Brian Yadao discussed U.S. first-quarter GDP (gross domestic product) growth and key takeaways from the recent U.S. Federal Reserve (the Fed) meeting. They also provided an update on first-quarter earnings season results from Europe.

Fiscal stimulus, vaccine rollout supercharge U.S. Q1 growth

On April 29, the U.S. Commerce Department reported that GDP grew at a 6.4% annualized rate during the first quarter of the year—a number Ristuben characterized as very strong. “6.4% is a very meaningful increase in economic activity,” he remarked, adding that the acceleration was fueled by what markets had been anticipating: an uptick in personal consumption expenditures, including durable goods, non-durable goods and services.

The boost in GDP serves as a confirmation that COVID-19 vaccines and large amounts of fiscal stimulus are improving the U.S. economy as intended, Ristuben said. “Ever since Pfizer’s Nov. 9 announcement on the efficacy of its vaccine, markets have been hoping that the administration of vaccines would lead to a broader reopening of the economy, which in turn would lead to a notable increase in overall economic activity. This belief was bolstered further by the passage of the $1.9 trillion stimulus bill in March, as well as the $900 billion package approved by Congress last December,” he added.

The aid to American households over the winter led to a stockpile of cash for the U.S. consumer as a whole—a stockpile that consumers are now beginning to spend from, Ristuben said. The strong growth in GDP reflects this, he said, noting that markets didn’t move much in response to the report because it was already expected. “Essentially, the market has gone from hoping the narrative of an economic recovery would play out, to seeing preliminary data supporting this idea, to now finally having concrete data confirming that a rebound is well underway,” he stated.

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