Thoughts

April 16, 2021 | 13:51

The U.S. Economy’s Real-time, Really-Big Recovery

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

The second leg of the key March indicators showed striking gains, with vaccinated consumers rushing to spend their latest (and largest) rebate cheques on just about everything, including indoor dining. Retail sales blasted 9.8% higher, taking their gains since the start of the pandemic above 17%. Despite supply shortages, factory production popped 2.7%, and regional surveys flag a strong April, too. Homebuilders quickly picked up their hammers after getting snowed in the prior month, cranking housing starts 19.4% in March.

More timely data suggest the economy’s blistering pace has legs. The New York Fed’s weekly economic tracker implies 11.7% y/y real GDP growth in early April, roughly a percentage point below the peak rate we anticipate for the second quarter, which will be flattered by the low year-ago comparison. Job postings have pushed well above pre-pandemic levels, though filling many positions is still a challenge, according to the latest Beige Book. The Census Bureau’s Household Pulse Survey suggests the April payrolls report will be another blockbuster. Credit card spending is rising, notably in low-income zip codes where two rounds of stimulus cheques have made a big difference. Driving, walking and retail mobility are on an upswing, and even public transit use is picking up. The number of seated diners came within 80% of normal levels last week, before dipping as virus caseloads edged higher. A few cities, such as Tampa, Houston and Las Vegas, are back to normal dining habits. Spending at gas stations has normalized, reflecting both costlier fuel and increased driving, and gas production is now within 4% of pre-virus levels. Benefitting from more road trips, hotel spending is now about 30% below pre-virus levels compared with near 60% in December. Air travel is also cruising at a higher altitude. The number of U.S. air passengers is perched more than half-way between last year’s lows and pre-virus levels, though the number of flights is still about 40% below 2019 levels. Not everything is flying in the right direction, however. There is still no sign of an upturn in oil production, though this could change soon given lower inventories and higher consumption. Fewer new mortgage applications and a tepid advance in the NAHB homebuilder index this month suggest the housing market might be losing steam, though that wouldn’t be a bad thing given the rapid rise in prices.

The upshot is that the U.S. economy is smoking. Its biggest threat is another wave of caseloads, at least until the population achieves mass immunity, which could be delayed by a pause in the single-shot J&J vaccine rollout. Still, after the boffo retail sales release, we hiked our Q1 calls for consumer spending and real GDP to 11% and 7%, respectively, while trimming Q2 rates as more of the stimulus boost seems to have been front-loaded. This left our 2021 GDP growth estimate unchanged at 6.5%, though we remain somewhat above the consensus forecast. With American consumers set for their best year since 1946, our optimism seems justified.