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Fiscal stimulus drives US economic growth in the first quarter

US Economic Growth

The US Department of Commerce confirmed the acceleration of the US economic growth in the first quarter of 2021.

Such growth came as a result of the massive fiscal stimulus, as the gross domestic product increased at an annual rate of 6.4%.

The number of new applications for unemployment benefits decreased more than expected last week.

The growth rate has not changed from what was estimated last month, and it comes after a growth rate of 4.3% in the fourth quarter of last year.

US Economic Growth

This is the second-fastest GDP growth since the third quarter of 2003 and keeps the economy on a path towards surpassing the pre-pandemic level this quarter.

In addition, the number of new applications for unemployment benefits fell more than expected last week as layoffs eased as companies urgently need workers to meet increased demand thanks to the rapid reopening of the economy.

The Labor Department said that the total government jobless claims submitted for the first time reached a seasonally adjusted level of 406,000 for the week ending May 22, compared to 444,000 in the previous week.

This is the lowest number since mid-March 2020 as the requests remain below 500,000 for the third consecutive week.

Although the number of applications is still much higher than the range of 200-250 thousand applications which is in line with strong labor market conditions, it is below the record level recorded in early April 2020 of 6.149 million.

The labor shortage, even though about ten million Americans are officially unemployed, is due to the safety net that the government has reinforced during the Coronavirus pandemic after the unprecedented economic and humanitarian repercussions of the spread of the Coronavirus.

The shortfall is also due to a modest increase in the number of new jobs in April, which amounted to 266,000, compared with 770,000 in March.

Counter offer

On the other hand, Republican senators presented the US President with a counter-proposal to the infrastructure plan worth $1,000 billion. The amount still far from that proposed by Joe Biden, while deep differences remain over the sources of funding.

On May 21, the White House cut the value of its infrastructure plan by about $600 billion, to reach $1,700 billion, in an effort to gain Republican support.

Republicans responded by noting continuing “deep differences” while promising to work on a counter-offer.

At the end of March, Biden presented his big project, “The American Jobs Plan,” as it would create millions of jobs, stand up to China and combat climate change.

Democrats had hoped to organize a first vote on this bill in early July, but the slow pace of negotiations may delay that date.

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