May 2021 National Economic Outlook

Executive Summary

The U.S. economy expanded 2.3% at a seasonally adjusted annualized rate in first-quarter The U.S. economy grew at a strong pace in the first quarter as consumers bought goods, and to a lesser extent services, thanks to stimulus payments, vaccines, and an improving outlook.

• Real GDP increased 6.4% at an annualized rate in the first quarter of 2021. This does not mean that the economy grew by 6.4% in the first quarter; instead, it grew by 1.6%, and would grow by 6.4% if it maintained this pace for an entire year.
• Real GDP fell more than 10% (unannualized) from the fourth quarter of 2019 to the second quarter of 2020 as the pandemic came to the U.S. Since then real GDP has increased by about 10%.
• As of the first quarter of 2021, real GDP was 0.9% below its pre-pandemic peak in the fourth quarter of 2019.

The April jobs report was a huge disappointment. The consensus expectation was for job growth of around one million, but instead the economy added only 266,000 jobs in April, according to a survey of employers.

Under normal circumstances an increase in employment of 266,000 would be a solid number. But with employment still about 8.2 million (4.3%) below its pre-recession peak, at this pace it would take a few years for employment to return to its pre-recession level.

Supply chain issues, labor shortages, and seasonal adjustment issues may have been a drag on job growth in April. The unemployment rate rose slightly over the month to 6.1%, from 6.0% in March. This was the first increase in the unemployment rate since March 2020, when the pandemic was coming to the U.S.

Notwithstanding the April increase the unemployment rate has fallen quickly since peaking at 14.8% in April 2020, but it remains well above its pre-pandemic level of 3.5%. Unemployment remains a widespread problem for the U.S. economy.

Inflation sharply overshot expectations in April. The consumer price index rose 0.8% from March, much higher than the consensus forecast of 0.2%. The upside surprise in April was in core CPI (excluding food and energy); it rose 0.9% versus an expected 0.3%. Almost one-half of the inflation in April came from used cars and trucks, rental cars, and airline fares.

The CPI in April was up 4.2% from one year earlier, but this is partly because prices outright declined in the spring of 2021 as the pandemic took hold. The CPI was up a smaller 3.1% in April from February 2020, before the pandemic. Similarly, core CPI was up 3.0% in April year-over-year, but only 2.6% from February 2020.

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