INSIGHTS AND RESOURCES

First-quarter GDP: Growth improves as the recovery accelerates

INSIGHT ARTICLE  | 

Authored by RSM US LLP


An improved public health outlook linked to mass vaccinations and a flood of fiscal aid coursing through the American economy boosted gross domestic product by 6.4% during the first three months of the year.

The composition of growth was rock solid to kick off the year as American households increased spending by 10.7%, setting the stage for the return of economic activity to pre-pandemic levels in the current quarter—an extraordinary policy achievement.

Net exports and gross private domestic investment each subtracted 0.87 percentage points from growth as changing inventories dragged down the top-line number by 2.64 percentage points. It is clear that as the recovery improves, firms release pent-up demand for investment and inventory accumulation rises, there is room for the economy to accelerate into the second quarter.

The primary policy takeaway from this report is to stay the course. It is essential that the fiscal and monetary authorities follow through on current policy paths for the economy to return to full employment, which we expect in the second half of next year.

 

Until then, providing vaccinations, fully reopening the economy this summer, opening schools this fall and finding consensus in Washington on the modernization of an aging American infrastructure all support what we think will be the strongest rate of growth since the 1980s.

The household-led spending increase was fueled by a range of gains—23.6% in demand for goods, 41.4% in advance outlays on durables, 14.4% on nondurables and 4.6% in service spending.

Given that the economy is not yet completely open, one can look at demand for services and get the sense that the increase in government cash transfers to households will stoke further acceleration in the services-dominant American economy during the middle of the year, which underscores our 10.7% forecast for the second quarter growth.

The alternative proxies for domestic growth look even stronger than the top-line number and imply that GDP in the current quarter should look even more robust. Real final sales advanced at a 9.2% clip, gross domestic purchases increased 7.1%, final sales to domestic purchasers jumped 9.8%, and final sales to domestic private purchasers increased 10.6%. Given the increase of 61.3% in disposable personal income, investors and firm managers should anticipate a sustained consumer-led boom through 2022.

The quality of the data inside the report was quite strong. Fixed business investment increased by 10.1%, nonresidential investment jumped by 9.9% and residential investment increased by 10.8%. Productivity-enhancing investment in equipment increased by 16.7% and intellectual property by 10.1%. Government consumption increased by 6.3% on the back of a 13.95% increase in federal consumption and contributed 1.12 percentage points to overall growth.

The only real blemish in the report was the 4.8% decline in structures that underscored the 5% decline in overall gross private investment during the quarter.

As expected, net exports were a drag on growth, with imports subtracting 0.77 percentage points from growth and exports 0.1 percentage points from the top line.

Let's Talk!

Call us at +1 213.873.1700, email us at solutions@vasquezcpa.com or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Joe Brusuelas and originally appeared on 2021-05-04.
2020 RSM US LLP. All rights reserved.
https://rsmus.com/economics/the-real-economy/the-real-economy-volume-77/first-quarter-gdp-growth-improves-as-the-recovery-accelerates.html

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

​Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how ​Vasquez & Company LLP can assist you, please call +1 213.873.1700.

Subscribe to receive important updates from our Insights and Resources.

  • Should be Empty: