- Personal income surged by 21.1% month-on-month in March, slightly ahead of the median survey estimate of 20%. Stimulus checks from the American Rescue Plan accounted for the bulk of this increase as roughly 80% of the budgeted amount was disbursed in the month. Proprietors’ income rose a robust 6.2% with the help of $250 billion of the Paycheck Protection Program’s second round, 40% of which was allocated to firms with fewer than 10 employees. Unemployment insurance benefits rose by 1.1% on the month, as did wages and salaries, moving above the pre-pandemic level for the first time.
- Removing inflation and taxes, real disposable income rose by 23.0% on the month and 29.3% year-on-year.
- Personal spending grew by 4.1% month-on-month in March, just two ticks below the consensus call of 4.3%. Subtracting inflation, real spending grew by 3.6% month-on-month in March.
- Goods spending was up 8.1% due to a strong 10.8% expansion in durables and 6.5% growth in non-durables. The increase in goods spending was primed by spending on recreational goods (such as games, toys, and hobbies) and motor vehicle and parts.
- Spending on services was a little more subdued, rising 2.2% in March. Still, this was a notable acceleration compared to the average over the past eight months. As in the previous month, gains were led by food services and accommodation, one of the most battered sectors during the pandemic.
- Rising income pushed the personal saving rate up to 27.6% last month, a level last seen in April 2020. The total amount of savings is now almost $2.9 trillion above the pre-pandemic level.
- The personal consumption price deflator rose 0.5% on the month, and 2.3% on a year-on-year basis. Once again, the most prominent driver of the increase in headline prices was energy goods and services (+4.9% m/m) in March. Removing energy and food prices, the core PCE deflator grew by 0.4% m/m and 1.8% y/y (from 1.4% in February).
Key Implications
- There were few surprises in today’s release. Its precursors – reports on retail sales and the first quarter GDP – already heralded strong readings in income and spending. The economic impact payments of the American Rescue Plan helped draw an additional peak in the personal income series, resonating in almost $3 trillion in excess savings. The report offers signs of growing momentum in the labor market, with wages and salaries finally moving above their pre-pandemic threshold. The recent downward trend in jobless claims suggests this progress will accelerate.
- Income supports did exactly what they were set out to do – stimulate the economy. Personal consumption expenditures recovered handsomely in March after suffering a mild weather-driven set-back in February. As in the past year, consumers favored spending on durable goods, which is now almost 30% above its January 2020 mark. Still, overall consumer spending is still roughly 10% from where it was expected to be pre-COVID – a reminder of the damage this health crisis inflicted on services spending.
- Apart from isolated reports of rising cases that could hold back local economies, downside risks to economic growth are waning. The unstoppable vaccination campaign should remove last obstacles standing on the way of re-opening, while excess savings and income support will provide financial means to further turbocharge consumption.
