US economy grows at annualized 6.4% in Q1 amid vaccine rollout, fiscal support

WASHINGTON -- The US economy grew at an annual rate of 6.4 percent in the first quarter of 2021, the US Commerce Department reported Thursday.

"The increase in first quarter GDP (gross domestic product) reflected the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic," the department's Bureau of Economic Analysis said in the "advance" estimate.

The increase in real GDP in the first quarter reflected increases in personal consumption expenditures, non-residential fixed investment, federal government spending, residential fixed investment, and state and local government spending that were partly offset by decreases in private inventory investment and exports, the report showed. Imports, which are a subtraction in the calculation of GDP, increased.

"Easy monetary policy, federal government spending to ramp up vaccinations and a surge in incomes enabled by emergency aid and two rounds of stimulus checks pushed consumer spending up at a double-digit pace," Diane Swonk, chief economist at Grant Thornton, a major accounting firm, wrote in an analysis.

Business investment, meanwhile, continued to post "solid" gains but "at a slower pace" as firms scrambled to adopt existing technologies and upgrade their equipment, Swonk noted.

The largest, single drag on growth was inventories, which plummeted in response to the surge in consumer spending, she continued, adding that alone shaved 2.7 percent from overall GDP growth.

"The biggest hurdles during the first quarter were regional outbreaks and the lingering surge in infections that accompanies them," Swonk said. "The ability of the economy to fully heal is still contingent upon our ability to contain the spread of the virus now with vaccinations."

The 6.4-percent quarterly growth came after the economy saw a 3.5-percent contraction amid the COVID-19 pandemic in 2020.

According to the International Monetary Fund (IMF)'s latest estimation, the US economy is expected to grow by 6.4 percent this year, 1.3 percentage points up from the January estimation.

US President Joe Biden on Wednesday night officially introduced the American Families Plan, a 1.8-trillion-US-dollar spending proposal focused on childcare and education, just a few weeks after proposing a 2-trillion-dollar infrastructure plan, noting that with a corporate tax hike and increased tax for the wealthiest, all investments he proposed would be fully paid for over the next 15 years.