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Consumer spending soars in March after Americans get $1,400 stimulus checks

The numbers: Consumers splurged on new cars, recreational goods and takeout food in March after most Americans received $1,400 government stimulus checks, giving a big shot in the arm to an economy still recovering from the coronavirus pandemic.

Consumer spending soared 4.2% last month, the government said Friday. Economists polled by Dow Jones and the Wall Street Journal has forecast a 4% increase.

Incomes jumped a whopping 21.1% in March mostly because of the federal stimulus.

The surge in income and spending last month played a key role in boosting gross domestic product in the first-quarter. The economy grew at a robust 6.4% annual pace against the backdrop of falling coronavirus cases, relaxed government restrictions and the creation of 1.5 million new jobs.

Economist predict even faster growth in the spring as vaccinated Americans get out and about and businesses ratchet up production to meet rising demand.

A key measure of inflation known as the PCE, meanwhile, increased at a 0.5% rate in March. That pushed the yearly average up to 2.3% from 1.5% in the prior month, and it’s likely to head higher still over the next few months.

What happened: Americans spent gobs of money last month on new cars and trucks, recreational items such as toys and games, prepared food and many other consumer goods. Spending also increased on hotel rooms as Americans began to leave their homes after being vaccinated.

As long as coronavirus cases keep falling, the spending binge is unlikely to abate soon. Businesses are hiring more people and increasing investment in order to meet a strong rebound in demand for goods and services.

Services are especially primed to benefit. Americans are flying more, going out to eat, taking a vacation and enjoying recreational activities that were largely off-limits during the pandemic.

A high savings rate will also give Americans plenty of cushion to spend. The level of savings shot up in March to 27.5% — about four times the prepandemic average.

Consumers have nearly $2 trillion in so-called excess savings — savings above what would normally be the case if there had been no pandemic or government stimulus. That money is eventually going to be spent.

Read: Fed sticks to easy-money strategy even as it sees strengthening economy

The big picture: The U.S. economy is in many ways back to what it was like before the pandemic. Unprecedented government stimulus has had a lot to do with, but a rising number of vaccinated Americans has played an even bigger role.

See: A visual look at how an unfair pandemic has reshaped work and home

The stimulus won’t go on forever and eventually the U.S. will need to chip away at all the debt its accumulated to survive the pandemic, but the economy is still gaining steam. Growth is likely to remain strong through the end of the year, especially if the U.S. recoups most of the 8 million jobs still missing because of the pandemic.

Read: U.S. jobless benefit claims sink to new pandemic low of 553,000

Market reaction: The Dow Jones Industrial Average
DJIA,
-0.56%

and S&P 500
SPX,
-0.52%

fell in Friday trades, but both indexes remained near all-time highs.

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