Thursday, May 1, 2014

Personal Strong Consumption Growth Outpaced Personal Income in April, Lowering Savings Rate

Personal consumption jumped 0.9% in March, the largest monthly growth since August 2009. Personal consumption has a 0.7% real consumption growth in March. Vehicle sales drove the growth, accounting for over half of March’s improvement.

Personal income increased also saw strong increases of $78.4 billion, or 0.5%. Of that increase, $68.0 billion of it was disposable personal income. Personal income growth was led by wage growth, which has been rare throughout the recovery. Real income growth was slightly lower than nominal growth at 0.3% compared to 0.5% respectively.

There was likely pent-up demand from the harsh winter that accelerated spending in March. Moreover, the weather impacted wages, reducing job growth and hours worked, which reduced income. Utility bills were higher from the weather. All these factors combined placed downward pressure on income and spending, which was alleviated in March.

The strong surge in spending outpaced strong wage growth, pushing the savings rate down to one of the lowest levels in years. March’s savings rate of 3.8% is the second lowest reading since August 2008.

Inflation remained at low levels as the PCE deflator rose 0.2% in March, 1.1% above year-ago levels. While the annual rate is an improvement from last month, inflation remained below the 2.0% target of the Federal Reserve.

Read the BEA release.

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