In the first quarter the economy grew by 1.6%. That’s equal to an annualized growth rate of 6.4% for U.S. GDP.
You don’t have to look hard to find the cause. Consumer spending rose 2.6 percent in the first three months of the year, with a 5.4% increase in spending on goods accounting for most of the growth. Americans ramped up spending on cars, furniture, recreational vehicles and other long-lasting items, as well as on clothes and food. Spending on services, which has slumped throughout the pandemic, rose by a more modest 1.1%.
That growth in spending was, in turn, powered by a surge in income as the federal government sent out two round of pandemic relief checks. After-tax personal income, adjusted for inflation, jumped 12.7% in the first quarter, with the government payments accounting for most of the increase. Spending surged in a similar fashion after the first round of checks in 2020.
Americans still have plenty of cash to spend. Households were sitting on a collective $4.1 trillion in savings in the first quarter, up from $1.2 trillion before the pandemic.
Businesses have decided that spending to meet consumer demand is a good idea. Business investment rose 2.4% in the first quarter and is now above its pre-pandemic level.
Stock markets liked the news. At the close the Standard & Poor’s 500 was up 0.68% and the Dow Jones Industrial Average had gained 0.71%. The NASDAQ Composite was ahead 0.22 and the NASDAQ 100 was higher by 0.49%. The Russell 2000 small cap index lost 0.38% and the iShares Emerging Market ETF )EEM) was lower by 0.24%.
The CBOE S&P 500 Volatility Index (VIX) moved higher by 1.62% to 17.56 as investors and traders didn’t see much reason to re-evaluate their take on market risk. The yield on the 10-year Treasury rose 2 basis points to 1.63%. The yield is still down 8 basis points in the last month.