- Q1 GDP rose 5.6% (annualized) following a 9.3% Q4/2020 increase
- Preliminary April GDP estimate showed a drop of 0.8% from March as containment measures bit
- Government supports to keep putting a floor under household incomes through third virus wave
The increase in Q1 GDP reported this morning was well-telegraphed by earlier monthly estimates that showed the economy continued to grow through the third wave of virus spread and containment measures. The increase over the winter was despite still very weak household spending on services due to the virus threat. But residential investment surged with both new building and home resales picking up. Spending on goods also increased, and exports rose 6.0%. Business investment was weak with investment in aircraft falling by a whopping 98.7% (not-annualized).
Overall output softened more in the third wave of virus spread with the early estimate of April GDP down 0.8% from March – marking the first decline since last spring’s collapse. The hospitality sector pulled back as another round of restrictions kicked in, but manufacturing output also fell as global chip shortages weighed on motor vehicle production.
Employment also fell sharply (by 207k) in April, and we expect another pullback in May to be reported later this week. But government supports are still largely in place, and have put a floor under household incomes. Household disposable incomes were running almost 11% above pre-shock (Q4/2019) levels in the first quarter of this year, and households added another $47 billion of savings in Q1 to the larger than $200 billion balance added over the four quarters of 2020. All said, ample household purchasing power remains in place to support a recovery in spending relatively quickly as virus containment measures ease.
