US: Racing Back To Life

Unprecedented stimulus has lifted US economic activity to within touching distance of its pre-pandemic levels. President Biden isn't finished with more money on its way to complement a private sector reopening spending splurge. The result is likely to be an economy that is larger than would have been the case had the pandemic not occurred.

From above of small American flag placed on stack of 20 dollar bills as national currency for business financial operations

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Almost there

First-quarter GDP growth numbers for the States show the US economy has recovered virtually all its lost output having contracted 10% peak to trough last year. Investment spending is now higher than before the pandemic started thanks to a combination of the red-hot property market leading to a surge in residential construction, while the shift to working from home has seen huge investment in IT infrastructure.

Consumer spending is just 0.1 percentage point below where it was in the fourth quarter of 2019, having fallen 18% between January and April last year. Credit here of course goes to government support efforts - expanded and uprated unemployment benefits and stimulus payments - that means income levels actually rose throughout the pandemic despite millions of people losing their jobs.

Government spending is also higher, but trade remains an overall drag with strong domestic demand sucking in imports while ongoing COVID containment measures overseas and weaker economies mean exports have lagged behind. Inventories have also been run down, which has subtracted from growth.

Level of real GDP components

Source: Macrobond, ING

Even better than a full recovery

High-frequency data, be it daily credit and debit card transactions, restaurant diners or air travel passengers, suggests the momentum has continued into the early part of the second quarter.

With 150 million Americans now having at least one dose of the COVID vaccine and hospitalisations and deaths having plunged, the US is on track to be fully reopened by the end of the summer. This process is already offering a greater range of options on which to spend money and is creating more and more job opportunities, particularly in the hard-hit leisure, hospitality and travel sectors. The US is on track to be fully reopened by the end of the summer

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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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