US consumers shrug off high inflation, lean on savings to boost spending
Consumer spending, which accounts for more than two-thirds of US economic activity, surged 1.1 percent last month. Data for February was revised higher to show outlays advancing 0.6 percent instead of 0.2 percent as previously reported
April 30, 2022 / 06:41 AM IST
US consumer spending rose more than expected in March amid strong demand for services, while monthly inflation surged by the most in 16-1/2 years, giving the Federal Reserve ammunition to hike interest rates by a hefty 50 basis points next week.
The case for an aggressive monetary policy stance from the US central bank was also strengthened by other data on Friday showing compensation for American workers recording its largest increase in more than three decades in the first quarter. Companies are boosting wages in a desperate bid to attract scarce workers.
The strength in consumer spending heading into the second quarter allayed fears of a recession after the economy unexpectedly contracted in the first three months of the year.
"There's nothing about to go wrong with the economy with the consumer still cheerleading the way forward to prosperity," said Christopher Rupkey, chief economist at FWDBONDS in New York. "No recession on the horizon yet."
Consumer spending, which accounts for more than two-thirds of US economic activity, surged 1.1 percent last month, the Commerce Department said. Data for February was revised higher to show outlays advancing 0.6 percent instead of 0.2 percent as previously reported.
Spending on services increased 1.1 percent, lifted by demand for international travel, dining out at restaurants as well as hotel stays. There were also increases in healthcare spending and outlays on recreation and transportation services.
Spending on goods increased 1.2 percent, mostly reflecting gasoline and other energy products, as well as food, whose prices have risen sharply. Spending on long-lasting goods like motor vehicles fell for a second straight month because of shortages.
Economists polled by Reuters had forecast consumer spending increasing 0.7 percent. Even with prices sky-rocketing, inflation- adjusted consumer spending eked out a 0.2 percent gain last month, highlighting the economy's underlying strength in an increasingly turbulent environment.
The data was included in the advance first-quarter gross domestic product report on Thursday, which showed the economy contracting at a 1.4 percent annualised rate because of a wider trade deficit. This was due to surging imports, and a slower pace of inventory accumulation relative to the fourth quarter's robust rate. Consumer spending picked up last quarter, combining with business investment to boost domestic demand.
Stocks on Wall Street fell. The dollar slipped against a basket of currencies. U.S. Treasury yields rose.
The personal consumption expenditures (PCE) price index shot up 0.9 percent in March, the largest increase since September 2005, after climbing 0.5 percent in February. In the 12 months through March, the PCE price index jumped 6.6 percent, the largest gain since January 1982, after rising 6.3 percent in February.
March, however, likely marked the peak in that price index. Economists expect the increase in the annual PCE price index to start slowing as last year's large gains drop out of the calculation. In addition, the shift in spending back to services from goods is seen easing pressure on supply chains.
Excluding the volatile food and energy components, the PCE price index rose 0.3 percent after a similar gain in February. The so-called core PCE price index increased 5.2 percent year-on-year in March after accelerating 5.3 percent in February.