Overstimulated? Consumer Spending and Incomes Jumped More Than Expected in March
John Carney 30 Apr 2021
U.S. incomes rose at a record-breaking pace in March, reflecting the billions of dollars of direct stimulus payments from the $1.9 trillion American Rescue Plan President Joe Biden pushed through Congress last month.
Household incomes jumped 21.1 percent in March, following a 7 percent decline in February, data released Friday showed. The stimulus bill signed into law in March delivered up to $1,400 to individuals that month, the third round of direct payments meant to ease the pandemic’s impact on the economy.
Yet much of the money was saved. Consumer spending rose by 4.2 percent, the Commerce Department said. The savings rate jumped to 27.6 percent, up from an already high level of 13.9 percent in February. Excess household saving now totals around $2.3 trillion.
That is an indication that many households did not need the handout. It also creates the potential for further inflationary pressures in the months ahead if consumers decide the spend down their savings.
The Fed at this week’s meeting kept its key interest rate at a record low of 0 percent 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. Powell has repeatedly predicted any rise in inflation will be “transitory.” But Richard Curtin, the chief economist of the University of Michigan’s Survey of Consumers, warned Friday that consumer sentiment was so strong that price pressures were likely to continue longer and rise higher than officials expect.