Growth Here, Not There
You aren’t likely to find a bigger contrast in economic fortunes than the one between the U.S. and Europe as we finally come out of the pandemic crisis. In the U.S., the real gross domestic product, which is the sum of all goods and services produced in America, grew by an annualized rate of 6.4% during the first quarter of the year - and that’s on top of a 4.3% growth rate in the fourth quarter of 2020. The first quarter statistic represents the second-fastest pace of growth since the second quarter of 2003. This strikes me as an expected recovery from the self-inflicted COVID-19 recession.
The U.S. Bureau of Economic Analysis noted that personal consumption expenditures, business investment and federal, state and local government spending were all contributors to the growth. The most eye-popping number: disposable personal income increased 67% in the first quarter, compared with a decrease of 6.9% in the fourth quarter of last year. The stimulus checks apparently had their intended effect.
Meanwhile, the eurozone economy saw its gross domestic product decline by 0.6% in the first quarter and, in sharp contrast to the U.S., this was the second consecutive quarter of contractions. Germany’s economy fell by 1.7% in the first three months of the year, Italy showed a contraction of 0.4% and Spain and Portugal saw their economic activity shrink by 0.5% and 3.3%, respectively.
Although it is leading the world back to recovery, the U.S. has not totally returned to pre-COVID levels quite yet. The Federal Reserve estimates that some 8.4 million fewer Americans hold jobs now than prior to the pandemic, regardless of a relatively tame 6% unemployment rate.
I will admit that I expected Europe to come out of the COVID-19 recession at a similar pace to the U.S. It appears instead that the recession has lasted longer there. We can certainly debate the long-term effects of the stimulus here, but I do believe it has been effective in avoiding a deep recession.