Gregory Daco, Chief US Economist, and Kathy Bostjancic, Chief US Financial Economist, discuss the US economy being at an inflection point with activity and employment growth starting to accelerate. The highlight of the week was the ebullient 9.8% increase in March retail sales, which was the second largest gain on record. With stimulus checks in hand, consumers took advantage of warmer weather and increased vaccinations to go on a spending spree.
Reflective of the stronger data, we have revised up our Q1 real GDP growth tracker to 9.0% (from 6.9%). And, while our April baseline foresees real GDP growth averaging 7.2% this year, a stronger start to the year may push growth above 8% – the strongest pace since 1951. Inflationary pressures are rising, but we look for price growth to ease in the second half of this year thanks to increased production and the resolution of supply chain disruptions. We foresee the Fed maintain a dovish stance and refraining from rate hikes until 2023.