US personal incomes soar by most on record with fiscal stimulus

Washington

US personal incomes soared in March by the most in monthly records back to 1946, powered by a third round of pandemicrelief checks that also sparked a sharp gain in spending.

The 21.1 per cent surge in incomes followed a 7 per cent decline in February, Commerce Department figures showed on Friday. Purchases of goods and services, meanwhile, increased 4.2 per cent last month. Economists projected a 20.3 per cent jump in incomes and a 4.1 per cent gain in personal outlays, Bloomberg survey medians showed.

President Joe Biden signed the US$1.9 trillion American Rescue Act in March, providing individuals with stimulus checks and extending unemployment benefits through September. The increase in personal spending and incomes provides the economy a solid hand-off heading into the second quarter after a robust pace of growth at the start of the year.

The March data showed transfer receipts that include stimulus cheques and unemployment aid nearly doubled from a month earlier to nearly US$8.2 trillion. Wages, meanwhile, rose modestly in March.

Inflation-adjusted personal spending increased 3.6 per cent in March after a 1.2 per cent drop a month earlier. Goods outlays climbed 7.3 per cent, while spending on services rose 1.7 per cent.

The personal savings rate jumped to 27.6 per cent from 13.9 per cent in February. Disposable income, which exclude taxes and are adjusted for inflation surged 23 per cent in March.

With spending on the rise, more cash in people's bank accounts and vaccinations driving reopenings, economic growth is poised to further accelerate in the coming months.

The agency's key measure of consumer prices, known as the personal consumption expenditure (PCE) price index, that the Federal Reserve officially uses for its target rose 2.3 per cent in March from a year earlier, the biggest gain since 2018. The so-called core PCE price index, which excludes volatile food and energy costs, climbed 1.8 per cent after a 1.4 per cent gain in February.

Inflation metrics are being temporarily impacted by so-called "base effects". Year-over-year increases in the price metrics appear large because they are being compared to the very weak inflation prints seen at the start of the pandemic.

Inflation has been a contentious topic among economists, lawmakers and Wall Street, especially in the wake of the latest stimulus package, as well as Mr Biden's two infrastructure proposals that would total about US$4 trillion.

Fed officials anticipate that any surge in prices will prove temporary, but others point out that pent-up demand, rising materials costs and more federal spending could lead to sustained price pressures.

Speaking after the latest Federal Open Market Committee meeting on Wednesday, Fed chair Jerome Powell noted that 12-month measures of inflation are likely to move "well above" 2 per cent over the next few months, but the effects will "disappear" in the months after April and May. BLOOMBERG