Globally it’s the health of the US economy that’s front and centre this week with the first estimate of March quarter economic growth, a meeting of the Fed and then the release of the central bank’s favourite measures of consumer spending and inflation on Friday.
The first look at US GDP for the first quarter will come from the Bureau of Economic Analysis on Thursday and after the weak end to 2020 as Donald Trump and his disruption crushed consumer activity and confidence, and helped make Covid into a monster, economists are expecting a major rebound in the three months to March 31.
Moody’s expects “the first quarter should see renewed vigour as strong March data have moved our US high-frequency GDP model’s estimate up to 7.1% for first-quarter growth. ”
We are now expecting real GDP to rise 6.4% this year, compared with the 5.7% in our March and 4.9% in our February baselines,” Moody’s pointed out in a report released late last week.
The gathering recovery in the economy is something the US Federal Open Market Committee will have to grapple with in its two-day meeting this week on Tuesday and Wednesday.
Don’t expect the Fed to make much of a change – if any – in its post meeting statement except to again point out that the expected mid-year surge in inflation will be ’transitory’.
Moody’s said in last week’s report that “March 2021 was arguably its strongest month in decades aside from May 2020, when the economy was restarting after the futile six-week shutdown meant to contain the COVID-19 pandemic.
“While the March data were extraordinary—with an extra boost from weather as it rebounded from miserable winter weather that had largely shut down Texas for a week in February—the economy is set to post big gains through this time next year.
What will power the growth, Moody’s asked.
“Continued business re-openings as the pandemic steadily winds down, the massive fiscal support already in train with more likely to come, and the prodigious amount of pent-up demand and excess savings built up over the past year by generally higher-income households.
Excess saving is the extra saving that households have done as many sheltered in place and curtailed their spending and others benefited from extraordinary government support.
“This excess saving is on top of what households would have saved if the pandemic had not occurred and their saving behaviour had been the same as in 2019, before the pandemic,” Moody’s economists wrote last week.
Moody’s pointed to the strong jobs growth (900,000 in new jobs in march alone, a 10% jump in retail sales, strong car sales, record job openings and strong growth across the board showing up in the various monthly and quarterly business activity surveys.
The $1.9 billion stimulus spending package is now working its way through the US economy (hence the rises in retail sales, car sales and new home building and purchases).
With the extra spending ending up in consumer bank accounts, there should be a 20% gain in personal income for March (in Friday’s consumer income, spending and prices, or PCE inflation).
The AMP’s Dr Oliver says as well as a solid rise in personal spending we can also expect a solid rise in March durable goods orders (today), gains in house prices and consumer confidence (tomorrow).