GDP Growth Surges in First Quarter, But Will It Last?

April 30, 2021

The U.S. economy grew by 6.4% in the first quarter of 2021, bringing the economy nearly back to its pre-pandemic size. Aside from the third-quarter surge after the initial reopening last year, this is the highest growth since 2003.

While the boost came from many areas, including government spending and residential investment, personal consumption led the way. Consumers, who drive nearly 70% of all economic activity, accelerated spending by 10.7% in the first quarter, compared with a 2.3% increase in the previous quarter. 

While this is positive news for an economy still regaining its footing following the pandemic, it remains to be seen how sustainable this growth will be. Consumers were willing to spend because they were flush with cash after another round of stimulus payments.

Disposable personal income increased by $2.36 trillion, or 67%, in the first quarter. This increase is almost entirely due to stimulus payments. Personal savings was also up substantially, climbing to $4.12 trillion in the first quarter, up from $2.25 trillion in the fourth quarter. Consumers may spend some of their savings in the coming months once the nation fully reopens, but beyond that, GDP growth will likely moderate once the stimulus boost fades.

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