By MARTIN CRUTSINGER
AP Economics Writer
WASHINGTON (AP) — U.S. consumer spending rose at the fastest pace in nine months as incomes soared by a record amount in March, the result in part of billions of dollars in government support payments aimed at putting the country firmly on the road to recovery.
Consumer spending rose 4.2% last month, the Commerce Department said Friday, the best showing since the 6.5% spending increase seen in June. Spending had fallen 1% in February as frigid winter weather disrupted sales.
Incomes surged by a record-breaking 21.1% in March after having fallen 7% in February. The big gain was the result of the delivery of billions of dollars in relief payments as people received as much as $1,400 payments from the $1.9 trillion support package President Joe Biden pushed through Congress last month.
The strong gains offer yet more evidence that the economy is poised for a rapid recovery following 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 as 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 general economy, as measured by the gross domestic product, showed an annual increase of 6.4% in the January-March quarter. Many analysts believe that growth in the current April-June quarter will be even stronger, perhaps topping 10%.
Friday’s report showed that inflation rose 2.3% in March from the same month a year ago. But when the average prices of food and energy are excluded from the calculation, the gain was only 1.8%.
The Fed at this week’s meeting kept its key interest rate at a record low of 0% 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%, up from an already elevated 13.9% in February.
Excess household saving now totals about $2.3 trillion, a figure that has been climbing this past year.
Analysts believe consumers will start spending this savings stockpile in coming months as increased vaccinations get them back into stores to shop, providing a strong boost to the 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% this year, which would be the strongest performance since 1946.
The report on Friday showed that the 4.2% rise in spending was the result of an increase of 8.1% in the purchase of goods and a smaller 2.2% rise in the purchase of services, a category which includes restaurant dining, entertainment and other activities which have suffered the most from the pandemic shutdowns. The expectation is that spending on services will keep rising if the virus situation keeps improving.
The record 21.1% jump in incomes included a 1.1% rise in wages and salaries, reflecting strong hiring in March, and a 95.1% surge in the category of government receipts covering the increased payments from Biden’s $1.9 trillion rescue package. That package has so far delivered more than 163 million economic impact payments totaling $384 billion with payments of as much as $1,400 per individual.