US Economy Sees Growth
GDP Growth of 6.4% in Q1
The US economy came roaring back during the year’s first quarter, with gross domestic product growing 6.4%. GDP, which measures all the goods and services produced in the US, is getting closer to where it was before the onset of the COVID-19 pandemic.
Widespread vaccinations, businesses reopening, and pandemic stimulus checks are boosting GDP. Consumers, which represent 68.2% of the US economy, drove the boom, with spending up 10.7%. Spending on goods increased 23.6% while services spending grew 4.6% as businesses started to reopen.
Consumers Driving Recovery
Consumers spent more on goods during the first three months of the year with sales of appliances and big ticket items surging 41.4%. Consumers also set aside money during the quarter, with the savings rate climbing 21%. The increase in savings hopefully means the economy will stay strong in the months ahead. As more sectors of the economy begin to reopen, Americans will have cash in the bank to spend.
However, issues with global trade have continued to weigh on US GDP growth. Inventories and exports have declined while imports have increased. These trends are limiting the US’ GDP growth.
Unemployment Claims Dip Again
In another sign of economic recovery in the US, the Labor Department said initial unemployment claims last week fell to the lowest level since the onset of the COVID-19 pandemic.
Last week 553,000 people filed first-time claims for unemployment—a 13,000 decline from the week prior. The new unemployment claims are a far cry from the millions which were filed weekly last year, but are still a long way away from levels seen during the months prior to the pandemic when weekly claims were about 200,000.
Rising GDP and falling jobless claims are the latest evidence the US economy is recovering. With pandemic restrictions easing and consumers in a spending mood, economic growth is likely to continue in the coming months.
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The Government Steps in to Help Homeowners
FHFA Launches New Refinancing Programs
The Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, launched a new program to help more households refinance their mortgages and take advantage of low interest rates.
Mortgage rates fell during the pandemic, spurring an increase in refinances as homebuyers took advantage of lower rates. Last year, around 8.8 million homeowners refinanced their mortgages. 6.1 million of them refinanced with home loans backed by Fannie Mae and Freddie Mac.
However, borrowers with less than perfect credit had trouble refinancing their loans. They faced stringent underwriting requirements which many could not meet. The new program, which goes into effect this summer, aims to make the refinancing process easier for those homeowners.
Refinancing Made Simpler
The program eases credit requirements, simplifies the amount of documentation required, and waives some of the fees associated with refinancing a home mortgage. To be eligible for the new program, borrowers have to make 80% less than the median income of the area and not miss more than one mortgage payment in 12 months. The program is only for borrowers with a Fannie Mae or Freddie Mac-backed mortgage.
The FHFA said borrowers who participate in the program could save $100 to $250 per month if they refinance into a lower mortgage rate. The program could be a big help to homeowners who lost income during the pandemic and subsequently could not refinance their mortgages.
Low Interest Rates Benefit Strong Credit Scores
Low-interest rates have helped individuals with strong credit profiles during the pandemic. This program can help homeowners with less than perfect credit, but consumer advocates and industry experts question how many will benefit. Some argue that many struggling borrowers are already in pandemic forbearance programs and would not be eligible to refinance. Others question the need for a credit check when refinancing a Fannie or Freddie-backed home loan.
Either way, most agree this program is a much-needed first step to help more homebuyers take advantage of historically low mortgage rates.
Friday Fundings: MessageBird, Paxos, TravelPerk
Dutch Communications Startup Raises $1 Billion
MessageBird, a Dutch communications platform, raised $1 billion in venture funding. In conjunction with the fundraising round, MessageBird acquired SparkPost for $600 million. SparkPost operates a business email platform.
The Series C round of funding was led by Eurazeo and included participation by new investors Tiger Global, BlackRock, and Owl Rock. The deal consisted of $700 million in equity and $300 million in debt.
By acquiring SparkPost, MessageBird will make it easier for customers to communicate with their customers via SMS, voice, messaging, and now email. Some of MessageBird’s clients include Disney (DIS), Adobe (ADBE), and JPMorgan Chase (JPM). The latest capital infusion gives MessageBird a valuation of $3.8 billion.
Cryptocurrency Startup Raises $300 Million
Paxos, a startup which helps enterprises offer cryptocurrency products, raised $300 million in venture funding. The Series D round was led by Oak HC/FT and included participation by Declaration Partners, PayPal Ventures, and Mithril Capital, among others. The latest round gives Paxos a valuation of $2.4 billion.
The cryptocurrency technology company is building infrastructures and white-label services for corporations that want to offer crypto products. Paxos enables PayPal (PYPL) to offer customers the ability to buy, hold, and sell Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. PayPal’s Venmo also added the cryptocurrency feature. With the new funding, Paxos plans to continue investing in its infrastructure and enhance reliability, security, and compliance.
Corporate Travel Startup Raises $160 Million
TravelPerk, a Barcelona startup which helps businesses book flights and manages travel expenses, raised $160 million in venture funding.
The Series D round consisted of equity and debt financing and was led by Greyhound Capital. Since TravelPerk’s inception in 2015 it has raised $294 million. VCs are betting corporate travel will begin to rebound this year and are pouring millions of dollars into startups which are poised to benefit.
The company’s rival, TripActions recently raised $155 million, and has a $5 billion valuation. TravelPerk plans to use proceeds to support growth in the US and Europe and for product innovations to meet business travelers’ needs post-pandemic.