US: Real GDP growth likely to remain robust – Wells Fargo

Data released on Thursday showed real GDP grew at an annualized rate of 6.4% during the first quarter according to preliminary data. Not only was the headline rate of GDP growth supported by strong consumer spending growth, but fixed investment spending also rose at a solid rate, explain analysts at Wells Fargo. They expect growth to remain robust.

Key Quotes: 

“After nosediving roughly 10% between Q4-2019 and Q2-2020, real GDP is now only 0.9% shy of its pre-pandemic peak.”

“The marked increase in the headline GDP number was driven in large part by real personal consumption expenditures (PCE), which jumped 10.7%. Not only did consumer spending on goods remain very strong—purchases of durable and non-durable goods shot up 41.4% and 14.4%, respectively—but spending on services rose 4.6%.”

“But strength in the headline GDP number was not limited to real PCE alone, as fixed investment spending notched a solid 10.1% annualized rise in Q1. In that regard, business spending on equipment rose 16.7% and spending on intellectual property grew 10.1%. Strong growth in these areas reflect, at least in part, upgrades to equipment and software that are needed to support employees who are working remotely.”

“Headline GDP growth could have been even stronger in the first quarter had real exports of goods and services not declined by 1.1%.”

“We expect that real GDP growth will remain robust due, in large part, to pent-up demand for many services and the mountain of excess savings that many households have accumulated. Indeed, 2021 likely will be the strongest year for U.S. real GDP growth in nearly 40 years.”