LULU GARCIA-NAVARRO, HOST:
The economy is humming as the pandemic fades in intensity here in the United States. Weekly applications for unemployment assistance just reached their lowest level since the pandemic hit last March. The latest measure of the American economy as a whole pegged its growth at a healthy annual rate of 6.4%. So the economic news is good. And as President Biden told Congress this past week, he plans to capitalize on it.
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PRESIDENT JOE BIDEN: After 100 days of rescue and renewal, America is ready for takeoff, in my view. We're working again, dreaming again, discovering again and leading the world again.
GARCIA-NAVARRO: We'll ask a veteran Democratic economist how the Biden economy may look in a few moments. First, why the numbers are looking up. Partly, it has to do with what people have been calling stimmies - those $1,400 relief payments the government sent out. A lot of those funds went into the economy, but a lot got socked away. And NPR's chief economics correspondent Scott Horsley joins us now to explain what that means going forward.
SCOTT HORSLEY, BYLINE: Good morning, Lulu.
GARCIA-NAVARRO: It is refreshing to start something with good news. Congress approved those relief payments along with other parts of the federal rescue plan in early March. So what happened when the money started showing up in people's bank accounts?
HORSLEY: You know, it gave people an immediate boost. The Commerce Department says personal income soared 21% in March. That's a record, and it's almost entirely because of those federal payments. And people immediately spent some of the money. There was a big jump in spending on things like cars and appliances, also sporting equipment. Jonathan Silver runs a company called Affinity Solutions that tracks credit card spending, and he says even upper-income families that didn't qualify for the relief payments were spending more freely in March.
JONATHAN SILVER: There was a very quick money burning a hole in their pocket among lower-income groups, but now we're seeing higher-income groups also spending. We saw clothing, for example, up a whopping 63%. People are just saying, hey, you know, we're about to go outside, and we see a return to sort of a sense of normalcy, so I need to refresh my wardrobe.
GARCIA-NAVARRO: I can attest - no more sweatpants (laughter) and time to maybe invest in some clothes and, at least, dust off the stuff that I have. But it sounds like a lot of people also didn't spend the whole $1,400 at once.
HORSLEY: No, they didn't. While income jumped 21% when the payments arrived, spending went up by a much smaller amount. So people held on to a lot of the stimulus money, and that means it could help to bankroll spending for months to come, kind of like a time-release capsule you swallow in the morning, and it seeps into your bloodstream throughout the day. And even before those relief payments went out, a lot of people who have been able to keep working during the pandemic had squirreled away tons of savings because they haven't been going out to restaurants or taking vacations the way they normally would. So as people get vaccinated and start to feel comfortable getting on airplanes and going to ball games, that money is going to start to circulate, and that could provide another lift to the economy.
GARCIA-NAVARRO: But as people are spending more, we're also hearing about these sort of bottlenecks and shortages, whether it's lumber or steel or the chips that go into computers and cars. Are these shortages going to get worse if spending continues to ramp up, and there's more demand?
HORSLEY: They could get worse in the short run. You know, we are seeing shortages and higher prices for lots of raw materials. Companies are starting to pass on some of those higher prices to consumers. As a result, we are likely to see somewhat higher inflation this year. In theory, though, suppliers will adapt over time, and those price pressures will ease. Ordinarily, Americans spend a lot more money on services than they do on stuff - you know, more haircuts than hot dogs. But during the pandemic, that balance shifted a bit because people were scared of catching the coronavirus if they were out and around a bunch of other people. So they didn't go to a movie. They stayed home and bought a video game from Amazon, for example. All that extra demand for stuff has really stretched factories and transportation networks. Now, as people start to tiptoe out of lockdown, some of the spending should tilt back in the direction of services. But chief economist Diane Swonk of Grant Thornton says that may create its own kind of bottlenecks.
DIANE SWONK: As we pivot from our goods consumption into services, you'll also see, you know, surge pricing in everything from airfares to hotel rooms. And you may eat out - have more people eating out than you did in the past. And you could have some restaurants that have gone out of business and the lines for restaurants rise. And as it flares, it's going to test our patience.
HORSLEY: After a year of home cooking and takeout, though, Lulu, I think a lot of people will be more than happy to wait for a good restaurant meal.
GARCIA-NAVARRO: Word. That's NPR's chief economics correspondent Scott Horsley.
Thank you very much.
HORSLEY: You're welcome.
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