COVID stimulus package helps US economy grow at fastest pace since 2003

The US economy grew at its fastest rate since 2003 in the first quarter of the year, according to preliminary figures, as households and businesses lapped up government stimulus.

The Commerce Department reported an annualised rate of growth of 6.4% in the three months to January – higher than the 6.1% expected by economists polled by the Reuters news agency.

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Experts said the surge in gross domestic product (GDP) put the world’s largest economy on track to record its best performance in almost 40 years during 2021, following a torrid period of COVID-19 disruption in 2020.

While the US is predicted to take two years to recover to pre-pandemic levels, the first quarter growth figures showed a spurt from the 4.3% rate of GDP growth recorded in the fourth quarter of 2020.

The economy is rebounding following three rounds of relief money from the federal government – the first two under the Trump administration with his final aid package agreed late last year.

President Joe Biden‘s administration offered another $1.9trn rescue package in March, which saw most households qualify for one-off $1,400 cheques and an extended subsidy for those who had lost their jobs at a time when much of the economy was re-opening.

The most recent data has shown consumer spending hitting a 14-month high in April – boosted by more people having the confidence to get out and about thanks to the country’s vaccination rollout.

Separate figures released on Thursday showed that the labour market continued to improve, with 553,000 people making claims for jobless benefits last week.

That was down from 566,000 in the previous week. The total had stood at 6.1 million in April last year.

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The Federal Reserve, the country’s central bank, signalled again this week that it was willing to shrug off fears about the economy overheating and ignore pressure to reduce its own extraordinary support for the recovery by raising interest rates to put the brakes on higher inflation.

It has argued that the labour market remains weak, with 8.4 million fewer jobs when compared to its pre-crisis peak.

Politicians, however, are squabbling over the effects of the Biden stimulus and wider spending programmes – with Republicans warning of an unsustainable national debt mountain and tax rises.

The latest initiative, revealed on Wednesday to mark his 100th day in office, promised $1.8trn of support for families and education.

Robert Alster, chief investment officer at wealth manager Close Brothers Asset Management, said of the latest data: “The US is speeding ahead in the race to recovery, spurred on by a strong industrial recovery and stimulus-led consumer spending.

“The vaccination programme is powering full steam ahead, and the subsequent increase in freedom of movement has caused a much needed boost to the services sector.

“We did see some setbacks in March, like the contraction in durable goods orders following the semi-conductor chip shortages, but as yet no hurdle has been high enough to cause US growth to stumble.”

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