Key Takeaways
- U.S. first-quarter GDP accelerated by 6.4% (annualized), as we have predicted since March, largely on a 10.7% surge in consumption.
- Industrial supply prices are rising as a burst of demand outpaces supply, but we believe this is temporary and the growth pace will temper as the recovery momentum levels off.
- Consumer confidence is finally picking up and first-time jobless claims fell to their lowest level since last March.
- These factors are consistent with our second-quarter GDP growth forecast of 11.3% annualized growth.
Table 1
| Summary Of Indicators | |
|---|---|
| Indicator | How the data looks |
| Virus and mobility | |
| COVID cases and vaccinations | The U.S. continued to accelerate COVID-19 vaccinations and became one of the fastest developed economies to fully vaccinate nearly 30% of its population. Meanwhile, almost 42% of the population has received at least one dosage of COVID-19 vaccine (just behind the U.K.) |
| Google mobility | As vaccinations increased rapidly, restrictions eased, and new cases steadily declined, mobility for retail and recreation improved significantly in recent months, although it remained just below pre-pandemic levels. |
| Consumer sector | |
| Consumer sentiment | Consumer sentiment increased for the second consecutive month on the back of a faster vaccine rollout, a strong labor market, stimulus checks and a faster economic recovery. As per the Conference Board Consumer Survey, the number of consumers that think jobs are "plentiful" has increased to 37.9% in April from 26.5%. |
| Consumer comfort index | The consumer comfort index has been climbing since February, indicating that people think economic conditions are getting better. However, the index is yet to reach pre-pandemic levels. |
| High-income vs low-income spending | Low-income households continue to spend more compared to high-income households due to elevated unemployment benefits. In normal times, benefits replace only a fraction of lost earnings, but the CARES Act replaced more than 100% for two-thirds of unemployed workers, boosting low-income household spending. |
| Consumer spending segments | Spending in grocery and food stores is slightly above pre-pandemic levels. Spending on accommodation and food services picked up markedly in the past month, while spending for entertainment and recreation has improved, but still has a long way to go. |
| People-facing COVID-19-sensitive | |
| Open Table | Overall seated diners at restaurants continued to improve as states removed restrictions on dining. However, the average for the U.S. was still 22% below 2019 levels. States such as Florida and Texas increased by 8% and 5%, respectively, whereas New York and Illinois lagged pre-pandemic levels by 54% and 36%, respectively. |
| Air traffic | Air traffic has increased since February, but is still significantly below pre-pandemic levels. |
| Current and future activity | |
| Raw steel capacity utilization | Raw steel capacity utilization continues to recover steadily, now just 2.3 percentage points below its 2019 average. This reflects a rebound in industrial activities in the U.S., partly due to the infrastructure bill. |
| Rail traffic | Rail traffic inched up last week in comparison to a week prior and remained slightly above pre-pandemic levels. |
| New business applications | New business applications declined in the past two weeks despite the pick-up in economic activity. Nonetheless, business applications stayed well above pre-pandemic levels. |
| Home mortgage applications | Mortgage applications continued to lose momentum, down nearly 19% from the January peak. The fall in mortgage applications is perhaps due to spiraling house prices, tight inventory, and tight lumber supply. This might be keeping some potential homebuyers away. |
| Chemical activity barometer | The chemical activity barometer, a leading indicator for industrial activity, increased by 5% compared to its 2019 average, consistent with the current economic expansion. |
| Chemical activity diffusion index | The chemical activity diffusion index jumped to 100% in April for the first time since the pandemic reached the U.S. last spring. |
| Prices | |
| Lumber futures | Lumber futures prices reached a record high of $1,254/ broad ft. this week. A supply backlog along with high demand for new construction and renovation has been pushing prices up. |
| Industrial metal price index | Industrial metal prices continued to trend higher and stayed above the 2019 average on the back of a steady recovery in both domestic and external industrial activities. |
| Labor market | |
| Initial jobless claims/continuing claims | Initial jobless claims declined by 13,000 and stood at 553,000 in the week ended April 24. Continuing claims in all programs declined in the week ended April 10, relative to the previous week. |
| Conference Board's jobs plentiful - hard to find (net difference) | In April, the Conference Board survey's labor-market differential--the share of Americans saying jobs are plentiful minus the share reporting jobs are hard to get--posted its strongest one-month gain on record. |
| Indeed job postings | Indeed job postings continued to increase steadily, showing its strongest growth since February 2020. |
| Financial conditions | |
| Financial stress ndex | Financial stress continues to ease on the back of a faster vaccination rollout and expanding economic activity. |
Yes, you can get stung by a bee, or prick your finger on a thorn, but folks, let's not forget to stop and smell the roses!
U.S. GDP accelerated by an annualized 6.4% in the first quarter, matching exactly our forecast since March and confirming the build-up of momentum we had been tracking in this real-time economic publication series (see "U.S. Real-Time Data: Poised To Spring Ahead Amid Widespread Vaccine Rollouts", April 12, 2021) as well as in our U.S. biweekly economic roundup series (see "U.S. Biweekly Economic Roundup: The Recovery Accelerates Amid Consumer, Housing, And Industrial Gains", April 23, 2021).
The GDP report was strong in virtually every aspect, led by a 10.7% annualized surge in consumption--a reflection of improved vaccination rollouts, wider reopening and unprecedented government income support--with food and beverage purchased for off-premises consumption leading nondurable goods consumption growth and food service and accommodations leading service consumption growth.
Vaccinations May Have Peaked Already
The strong first quarter has provided a higher starting point for the second quarter. Real-time data in April so far has met its higher expectations, even as the pace of vaccinations peaked in mid-April at about 3.4 million per day (seven-day moving average), just before Johnson & Johnson's vaccine was halted temporarily. The authorities agreed to restart J&J vaccines this week, so it is likely that we will see the daily vaccination rate increase again (from 2.6 million currently), but that increase could be only short-lived.
As of April 28, 43% of the population has received at least one dose, rising from 34% two weeks ago, and the share of people fully vaccinated stands at 30%, leading major North American and European countries. That said, we may reach peak vaccine enthusiasm by mid-May. The vaccination pace could quite likely not be as fast as the first 50% of the population past mid-May, because now we are counting on folks:
- in hard-to-reach counties,
- who are hard to convince, and
- who can't or won't take time off to get the shot.
Nevertheless, it appears that we are still on track to get to that greater level of population-wide immunity (70%-90% of the adult population) in July, either by vaccination or from prior infection. According to health experts, the number of cases should be falling in the meantime, from 58,000 per day as of April 29--just as we saw exponential growth in cases last year (doubling in just a few days, for example), the principle of exponential decay means case numbers can halve in the same short period.
Industrial Supply Prices Bring Inflation Back Into Focus
Since our last publication, most indicators have continued to improve (see table 1 and charts below). What stands out is that most industrial production indicators continue to recover, and in tandem, prices of industrial supply, including metal and lumber prices, have risen sharply, bringing higher inflationary pressure back into focus.
We are in the camp that believes the pickup in headline inflation is tied primarily to resurgent economic activity after the pandemic-induced economic standstill and corresponding depressed prices last year. Against this backdrop, we expect the upward trend of corporate borrowers' cost pressures to moderate in the next year or two, as the economic recovery starts to level off and business activities normalize. Moreover, we think industries will largely be able to manage rising prices through cost-saving strategies, productivity gains, or by passing them through to customers (see "U.S. Corporate Cost Pressures May Hit Profit Margins In The Near Term", April 27, 2021).
Still, consumer price inflation as measured by the personal consumption expenditures (PCE) price index will likely average slightly above 2% in 2022-2024, which is a meaningful bump from the 1.4% average experienced since 2012, when the Federal Reserve first codified 2% PCE inflation as its target. (see "U.S. Markets See Inflationary Ghosts; Macroeconomic Signs Disagree", April 12, 2021). In the immediate future, we anticipate (like many) that consumer price inflation, which came in at 2.3% and 1.8% year-over-year, respectively, for headline and core in March, will jump further in April and lift inflation closer to 3% (materially above the Fed's 2% longer-run target) and remain above 2% for most of the year. This will draw attention to the issue of whether the rise in inflation is temporary or the beginning of a sustained upward trend.
That said, consumer confidence, which had shown stickiness near the trough (even as the reopening gained steam in March), has finally started to move up. That's welcome news for businesses and consistent with our second-quarter GDP growth annualized growth forecast of 11.3%. (see "Economic Outlook U.S. Q2 2021: Let The Good Times Roll," March 24, 2021). Job openings are more plentiful, and consumers feel more confident about finding jobs. At the same time, first-time jobless claims fell for a third consecutive week last week to the lowest level since the pandemic took hold in the U.S. more than a year ago--another sign the labor market is poised to narrow its 8.4 million jobs shortfall relative to the pre-pandemic peak at a quicker pace this spring.
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The views expressed here are the independent opinions of S&P Global Ratings' economics group, which is separate from but provides forecasts and other input to S&P Global Ratings' analysts. S&P Global Ratings' analysts use these views in determining and assigning credit ratings in ratings committees, which exercise analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
This report does not constitute a rating action.
| U.S. Chief Economist: | Beth Ann Bovino, New York + 1 (212) 438 1652; bethann.bovino@spglobal.com |
| U.S. Senior Economist: | Satyam Panday, New York + 1 (212) 438 6009; satyam.panday@spglobal.com |
| Research Contributors: | Shruti Galwankar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
| Debabrata Das, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai | |
| Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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