Spending, incomes surge as COVID-19 relief rolls out
WASHINGTON — U.S. consumer spending rose at the fastest pace in nine months while incomes soared by a record amount in March, reflecting billions of dollars in government support payments aimed at putting the country firmly on the road to recovery.
Consumer spending rose 4.2 percent last month, the Commerce Department said Friday, the best showing since a 6.5 percent increase in June. Spending had fallen 1 percent in February as frigid weather disrupted sales.
Incomes surged by a recordbreaking 21.1 percent in March after having fallen 7 percent in February. The gain reflected delivery of billions of dollars in relief payments, with individuals getting up to $1,400 from the $1.9 trillion support package President Joe Biden pushed through Congress last month.
The strong gains offer more evidence that the economy is poised for a rapid recovery after last year’s pandemic-triggered recession. Economists are counting on strong consumer spending, which accounts for two-thirds of economic activity, to power a rebound this year with a trio of economic factors coming to a head: trillions of dollars in government support, increased mobility because of vaccinations and a surge in pent-up consumer demand.
The government reported Thursday that the overall economy, as measured by the gross domestic product, rose at a robust annual rate of 6.4 percent in the January-March quarter. Many analysts believe that growth in the current April-June quarter will be even stronger, perhaps topping 10 percent.
Friday’s report showed that inflation rose 2.3 percent in March when compared with the same month a year ago. But excluding volatile food and energy, the gain was a lower 1.8 percent.
The Fed at its meeting this week kept its key interest rate at a record low of 0 percent to 0.25 percent, and Fed Chairman Jerome Powell said the central bank will not be concerned by what it expects will be a temporary blip in inflation this spring.
Friday’s report showed that consumers saved a lot of their big surge in incomes in March, pushing the savings rate to 27.6 percent, up from an already elevated 13.9 percent in February.
Excess household saving now totals around $2.3 trillion, a figure that has been climbing over the past year of lockdowns.
Analysts believe that consumers will start spending this savings stockpile in coming months as increased vaccinations get them back into stores to shop, providing a boost to the overall economy this year.
“The strong consumer showing at the end of the first quarter sets the tone for a summer boom,” said Gregory Daco, chief economist at Oxford Economics. “As health conditions improve and the economy reopens, generous fiscal stimulus, rebounding employment and rising optimism will help unleash pent-up demand.”
Daco forecast that consumer spending will increase by more than 9 percent this year, the strongest performance since 1946.