Last week the US Department of Commerce released the first estimate of US GDP growth in the first quarter. Today I am sharing the comments of JP Morgan, one of the Portfolio Strategists we utilize for client accounts, regarding the quarter’s growth.
The U.S. economy, as measured by real GDP, accelerated in the first quarter 2021, recording an annualized increase of 6.4%. Almost a year removed from the second quarter 2020 contraction of -31.4%, it is clear that the economy is in the midst of a swift, consumer-driven recovery; this latest reading is the third consecutive quarter of above-trend growth, following strong GDP growth in third quarter 2020 (+33.4%) and fourth quarter 2020 (+4.3%). Under the hood, first quarter 2021 personal consumption expenditures rose at a seasonally adjusted annual rate of 10.7% with the goods and services components up 23.6% and 4.6%, respectively. Strength in the services sector was driven by increasing vaccinations and gradual return to normalcy, as evidenced by solid quarterly growth in air transportation (+11.5%), accommodations (+9.5%) and food services (+5.8%). Recent market performance has also been stellar, with the S&P 500 and NASDAQ indices hitting record highs last week on the back of a blowout first quarter earnings season.
The quick rebound in the U.S. economy and equity market has directed increased attention to the Fed. For now, the Fed remains accommodative, electing at the most recent FOMC meeting to once again not adjust the target federal funds rate and reaffirming its commitment to asset purchases until “substantial further progress is made.” However, Chair Powell did highlight the vaccination campaign and fiscal stimulus as the primary drivers of the recovery and even noted improvements in the sectors hardest hit by the pandemic. As a result, with the backdrop of a robust recovery, investors should be positioned for higher yields as strong growth and higher inflation are realized in the quarters to come.