Households See Record 21.1% Surge in Income in March

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U.S. personal income grew the most on record in March, as ample government aid helped spark a spike in both saving and spending.

Personal income surged 21.1% in March, according to data released by the Bureau of Economic Analysis (BEA) Friday—the largest one-month jump since monthly records began in 1959. The increase was roughly in line with the 21.5% expected by Moody’s Analytics and the 20.3% median forecast of economists cited by Moody’s. Disposable income increased 23.6% in March, while consumer spending rose 4.2%, the most since June 2020.

Households received much of this money from Uncle Sam, with government transfers nearly doubling to $8.1 billion in March, nearly half of it via stimulus payments. Because people wound up saving most of this, the personal saving rate, at 27.6%, nearly doubled from 13.9% in February. March’s saving rate was exceeded only once on record when it hit 33.7% in April 2020, following passage of the government’s first pandemic aid package.

“While some households are no doubt still struggling, in aggregate, consumers are raking it in faster than they can spend it in a continuation of a trend that has been in place for almost a year,” Wells Fargo economists Tim Quinlan and Shannon Seery wrote in a commentary.

The BEA data for March shows how powerful (and plentiful) the aid included in the American Rescue Plan has been. Real gross domestic product, or GDP, rose at an annual rate of 6.4% in the first quarter of 2021, the government said Thursday, about twice as much as the average quarterly growth rate before the economy shut down. The growth pushed the economy nearly back to where it was prior to the pandemic. 

Economists credited increased consumer spending for the boom, and have projected we’ll see the economy roar even more this summer, as the pandemic and anxieties about it fade and restrictions on businesses lift. Armed with government aid and encouraged by a recovering jobs market, consumers will use this optimism as an opportunity to unleash pent-up demand for things like vacations and meals out, economists said.

But along with the boom, inflation has arrived, as expected. In March, the core PCE index, which excludes the prices of food and energy, increased to 1.8% from the year-earlier period, the highest since February 2020, nearing the Federal Reserve’s traditional inflation target of 2%. The Fed acknowledged this week that inflation has risen and the economy has strengthened, but has previously said it is comfortable with inflation “moderately above” its 2% target as the economy recovers from the pandemic. So-called headline PCE, which includes food and energy, increased 2.3%, the first time that number has risen above 2% since October 2018.