Last month, U.S. household incomes rose the most on record, thanks to a fiscal stimulus that also led to a sharp increase in spending, laying the groundwork for strong economic growth in the second quarter.
Personal income rose 21.1% in March from the previous month, the Commerce Department said on Friday, a record high in data dating back to 1946. The figure represented a sharp reversal from the 7% drop in February and exceeded economists’ expectations for a 20.3. percentage increase.
The rise in income was accompanied by a rebound in spending, as consumption rose 4.2% last month – the largest increase since June. The savings rate also increased to 27.6%, from 13.9% previously.
“This puts consumption – and possibly GDP – on track for double-digit growth in the second quarter,” said Aneta Markowska, chief economist at Jefferies. “While stimulus payments are largely behind us, the savings rate rose to 27.6% in March, which will continue to support spending in the months to come.”
we gross domestic product rose 6.4 percent on an annualized basis in the first quarter, according to data released Thursday, due to a 10.7 percent increase in personal consumption spending and spending on goods in particular.
Americans were able to loosen their purse strings thanks in part to two stimulus packages: a $ 900 billion deal approved in December and another $ 1.9 billion package adopted last month.
Rapid deployment of Covid-19 vaccines and fewer restrictions on business and travel activities, as coronavirus-related hospitalizations decline, have further propelled spending.
“Strong consumer results at the end of the first quarter set the tone for a summer boom,” said Gregory Daco, an economist at Oxford Economics, who forecast real consumption growth of over 9% this year, the strongest performance since 1946.
“Household incomes are, on an annualized basis, $ 5 billion higher than they were before the pandemic,” said James Knightley, economist at ING. “An astonishing figure that helps explain why the US economy has performed so well relative to Europe.”
Friday’s report also showed that the personal consumption expenditure price index rose 2.3 percent year-on-year in March. The so-called core PCE index, the Federal Reserve’s preferred inflation indicator, rose 1.8% over the same period.
The Fed said it was in no rush to unwind its ultra-accommodative monetary policy even as some investors and economists worried about a more sustained acceleration in inflation.
The central bank has already said it expects inflation be transient and highlighted the so-called base effects, which reflect the fact that prices collapsed around this time last year as the coronavirus pandemic escalated.