Real GDP rose at a 6.4% annual rate in the advance estimate for 1Q21, held back by slower inventory growth and a wider trade deficit. Consumer spending (a 10.7% annual rate), business fixed investment (+9.9%) and residential fixed investment (+10.8%) were all very strong. Personal income jumped 21.1% in March, reflecting stimulus checks and deposits to households, which helped to fuel a 10.8% surge in spending on durables (which also reflected a rebound from February’s bad weather). The PCE Price Index rose 0.5% in March (+2.3% y/y), up 0.4% (+1.8% y/y) excluding food and energy. The Employment Cost Index rose more than expected (+0.9%) in the three months ending in March, but the year-over-year increase remained moderate (+2.6%, vs. +2.8% for the 12 months ending March 2020).

As expected, the Federal Open Market Committee (FOMC) left short-term interest rates unchanged (federal funds target range at 0.00%-0.25%) and did not alter the monthly pace of asset purchases ($120 billion per month). The policy statement was close to the one following the mid-March meeting, although the FOMC recognized that “indicators of economic activity have strengthened” and “inflation has risen, largely reflecting transitory factors.” In his press conference, Fed Chair Powell said that it was too soon to even talk about reducing asset purchases.

Next week, the focus is expected to be on the April Employment Report. We can expect to add more than a million jobs in April, prior to seasonal adjustment. The unemployment rate is likely to edge lower, despite an expected increase in labor force participation. The ISM survey results should remain consistent with a strengthening economy.