Stimulus checks boost US consumer spending
US consumer spending rebounded in March amid a surge in income as households received additional COVID-19 pandemic relief money from the gov, building a strong foundation for a further acceleration in consumption in the second quarter.
Other data showed labor costs jumped by the most in 14 years in the first quarter, driven by a pick-up in wage growth as companies competed for workers to boost production. The White House's massive $1.9 trillion fiscal stimulus and rapidly improving public health are unleashing pent-up demand.
"While we aren't completely out of the woods yet, today's report shows the beginning of an economic rebound," said Brendan Coughlin, head of consumer banking at Citizens in Boston. "Assuming no setback in the continued rollout of the vaccines, U.S. consumers are well-positioned in the second half of the year to stimulate strong economic growth across the country."
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 4.2% last month after falling 1.0% in February, the Commerce Department said.
The increase was broadly in line with economists' expectations. The data was included in Thursday's gross domestic product report for the first quarter, which showed growth shooting up at a 6.4% annualized rate in the first three months of the year after rising at a 4.3% pace in the fourth quarter. Consumer spending powered ahead at a 10.7% rate last quarter.
Most Americans in the middle- and low-income brackets received one-time $1,400 stimulus checks last month which were part of the pandemic rescue package approved in March. That boosted personal income 21.1% after a drop of 7.0% in February. A chunk of the cash was stashed away, with the saving rate soaring to 27.6% from 13.9% in February.
Households have amassed at least $2.2 trillion in excess savings, which could provide a powerful tailwind for consumer spending this year and beyond.
The government's generosity and expansion of the COVID-19 vaccination program to include all American adults is lifting consumer spirits, with a measure of household sentiment rising to a 13month high in April. Wages are also increasing, which should to help to underpin spending when stimulus boost fades.
In a separate report on Friday, the Labor Department said its Employment Cost Index, the broadest measure of labor costs, jumped 0.9% in the first quarter. That was the largest rise since the second quarter of 2007. The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack and a predictor of core inflation as it adjusts for composition and job quality changes. Last quarter's increase was driven by a 1.0% rise in wages, also the biggest gain in 14 years.
Wages in the accommodation and food services industry, hardest hit by the pandemic, soared 1.7%.
Despite employment being 8.4m jobs below its peak in February 2020, businesses are struggling to find qualified workers as they rush to meet the robust domestic demand. Federal Reserve Chair Powell on Wednesday acknowledged the worker shortage saying "one big factor would be schools aren't open yet, so there's still people who are at home taking care of their children.