In the first quarter of 2021, real GDP surged and approached its pre-pandemic level as the economy continued to reopen. This quarter’s growth reflected strong gains for consumer and government spending.
According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) increased at an annual rate of 6.4% in the first quarter of 2021, after a 4.3% increase in the fourth quarter of 2020. It marked the fastest growth rate since the third quarter of 2003 (excluding the third quarter of 2020 of course) and was above NAHB’s forecast of a 5.2% increase.
The gain in real GDP in the first quarter of 2021 reflected increases in personal consumption expenditures (PCE), which alone accounts for about 70 percent of the overall economy, as well as gains for nonresidential fixed investment, residential fixed investment and government spending.
Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 10.7%, following an increase of 2.3% in the fourth quarter. The expansion in consumer spending reflected increases for both services and goods. The increase for the service economy is a reminder of the broader reopening trend. Goods spending increased 23.6% at an annual rate, led by motor vehicles and parts (+51.1%) as well as clothing and footwear (+33.8%). Expenditures on services increased 4.6% at an annual rate, mainly reflecting increases in food services and accommodation (+25.9%).
While nonresidential fixed investment rose 9.9%, residential fixed investment (RFI) increased 10.8% in the first quarter, after a 36.6% increase in the fourth quarter of 2020. The increase in nonresidential fixed investment reflected investments in equipment (+16.7%) and intellectual property products (+10.1%). The increase in residential fixed investment primarily reflected investments in single-family structures (+46%) and improvements (+29%).
Both federal government spending and state and local government spending increased in the first quarter. Meanwhile, exports declined 1.1%, and imports, which are a subtraction in the calculation of GDP, increased 5.7%.