U.S. consumer spending rebounded in March amid rising incomes as households received additional government funding from the COVID-19 pandemic, which laid a solid foundation for accelerating consumption in the second quarter.
Other data on Friday showed labor costs rose the most in 14 years in the first quarter, driven by rising wage growth as companies compete for workers to increase production. The White House’s $ 1.9 trillion fiscal stimulus and rapid improvements to public health are unleashing pent-up demand.
“Even though we haven’t completely left the forest yet. But today’s report shows the beginning of an economic recovery, ”said Brendan Coughlin, head of consumer banking at Citizens in Boston. “Assuming there is no ongoing failure to launch the vaccine, US consumers are well positioned in the second half of the year to stimulate strong economic growth across the country.”
The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, rose 4.2 percent last month after a 1.0 percent drop in February. Meet the expectations of economists
The data, included in Thursday’s gross domestic product report, showed growth of 6.4% annually in the first three months of the year after a 4.3% increase in the quarter. four Consumer spending moved forward at a 10.7% rate last quarter.
Most Americans in middle- and low-income groups received a one-time check of $ 1,400 stimulus last month as part of a pandemic aid package that was approved last month. March This resulted in a 21.1% increase in personal income after declining 7.0% in February.
A handful of cash was hidden, with savings rising to 27.6% from 13.9% in February. Households have at least $ 2.2 trillion in surplus savings, which could be a powerful contributor to consumer spending this year and beyond.
Government generosity and expanding the COVID-19 vaccination program to all American adults are pleasing consumers, measuring household confidence rising to the highest in 13 months in April.
Wages are rising too, which should bolster spending as stimulus cuts down.
In a separate report on Friday, the Labor Department said the employment cost index, the broadest measure of labor costs, rose 0.9 percent in the first quarter, the largest increase since the second quarter of 2007.
ECI is widely viewed by policymakers and economists as a better measure of labor market decline and is a predictor of core inflation when adjusting for composition and change in job quality. The last quarter’s increase was driven by a 1.0 percent rise in wages, the biggest gain in 14 years.
Wages in the lodging and food service industries, the hardest hit by the outbreak, rose 1.7 percent.
While hiring was 8.4 million below its peak in February 2020, businesses are struggling to find quality workers as they rush to meet strong domestic demand.
US stocks plunged after a recent hike. The dollar (.DXY) rose against a basket of currencies. US Treasury prices rise
Federal Reserve President Jerome Powell on Wednesday acknowledged the labor shortage, saying: “One important factor is that the school hasn’t opened yet, so there are still people who stay home, take care of their children and want to come back to work, but haven’t yet.”
Economists agree and expect the rising wages will contribute to higher inflation this year.
Rising demand and a weak reading from last year’s calculations boosted inflation last month.
The personal consumption expenditures (PCE) price index, excluding volatile food components and energy, rose 0.4 percent after rising 0.1 percent in February in the 12 months to March, the main PCE price index called. That was a 1.8 percent increase, the largest since February 2020.
The main PCE price index is the Fed’s preferred gauge of inflation for its 2% target, a flexible average.
Powell reiterated on Wednesday that he expected inflation to rise temporarily. But some economists have doubts.
“While labor costs are almost out of reach But there are clearly more wage pressures in the economy today than in the early stages of the past cycle, ”said Sarah House, Wells Fargo senior economist in Charlotte, North Carolina.
“Strong labor cost growth even before the economy enters full employment is reasonable to think that even with the new launch this year. But inflation tends to rise above the circulatory rate in the past. ”
Last month, households spent more on motor vehicles and leisure. They also visit the restaurant.
Adjusted for inflation, consumer spending bounced 3.6 percent last month after falling 1.2 percent in February. A revival in real consumer spending has led to a higher growth trend heading into the second quarter.
Most economists expect double-digit growth this quarter, which will bring the economy at least 7%, the fastest since 1984. The economy contracted 3.5% in 2020, its worst performance in the quarter. 74 years cycle
Our Standard: The Thomson Reuters Trust Principle.