Consumers spent more in March, showing that US households are absorbing high inflation and positioned to boost the economy heading into the spring and summer.
Personal consumption expenditures rose a seasonally adjusted 1.1% in March from the previous month, the Commerce Department said on Friday. Adjusted for inflation, consumer spending rose 0.2% last month, driven by higher spending on services. Household spending also increased at a faster rate than inflation in the previous year.
Consumers increased spending on services such as travel and dining, as well as goods such as gasoline and food. Spending on durable goods fell for the second month in a row, driven by lower spending on vehicles.
“The consumer is fine, they have a lot of money,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, pointing to the savings accumulated during the pandemic and adding that “the consumer is poised for a pretty decent second quarter.”
Personal income, a measure that includes salaries and government assistance, rose 0.5% from the previous month. That was a slower rise than headline inflation, which rose 0.9% in the month of March, according to the Commerce Department. Some Americans tapped into their savings to offset cost increases. The savings rate fell to 6.2% in March, the lowest in nine years.
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Kathy Bostjancic, chief US economist at Oxford Economics, said she expects the uptick in consumer spending to be sustainable, “but obviously there are big headwinds facing consumers right now,” such as inflation and supply chain disruptions as a result of closures in China.
Headline inflation, as measured by the Commerce Department’s price index, rose 6.6% in March from a year earlier, an acceleration from February, but excluding volatile food and energy costs, the gauge The Fed’s favorite, annual inflation cooled slightly, rising 5.2%. last month of a year before.
“The consumer has money. They pay off credit card debt. Confidence is not high, but the fact that they have money, they are spending it,” JPMorgan Chase & Co. Chief Executive Jamie Dimon said on an earnings call earlier this month. He expected that to continue in the second and third quarters, although inflation and the war in Ukraine pose challenges to the economic outlook, he said.
The consumer spending figures come amid mixed signals from the broader economy. The unemployment rate was 3.6% in March and workers’ wages increased, but US gross domestic product contracted at an annual rate of 1.4% in the first quarter of 2022.
That was largely due to a widening trade deficit, thanks to strong import demand from consumers, and slower stockpiling of inventory by businesses. Analysts expect the weakness to be short-lived: Economists surveyed by the Journal earlier this month had expected a 3% growth rate in the current second quarter.
Many American consumers are rethinking their spending habits amid continued high inflation.
In the San Francisco Bay Area, Michael Williamson is feeling the pain of higher prices at gas stations. The cost to fill up his SUV has risen to $130 from around $70 in 2018.
“As prices really start to skyrocket, I take a closer look and focus on the things I need in the immediate here and now,” said Mr. Williamson, who took early retirement as a general counsel at a medical technology company. .
Grocery prices have also risen sharply, he said. “I’m not buying filet mignons and bottles of fine wine right now,” the 51-year-old said. He plans to “travel locally, take day trips from home, a vacation at home” and forego traveling abroad this summer as a result of rising transportation costs and onerous Covid-19 testing requirements.
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