April 30, 2021
Personal consumption expenditures jumped 4.2% in March after having fallen 1.0% in February. The $1.400 tax refund checks bolstered consumer income and spending in March.
Goods spending has already surpassed its January high, but spending on services — in particular spending on restaurants, air travel and hotels — has not yet fully recovered. But with the savings rate high at 27.8% consumer spending is bound to climb sharply in the months ahead.
Personal income jumped 21.1% in March after having declined 7.0% in February as the $1,400 stimulus checks caused transfer payments to surge from $4.2 trillion to $8.2 trillion. But the income gain in March was not all transfer payments. The wage component rose 0.7% in that month. It has risen 4.6% in the past year, and at a 7.1% pace in the past six months.
What that means is that real disposable income — what is left after paying taxes and adjusted for inflation –jumped 23.0% in March after having declined 8.1% in February. The year-over-year increase is now 29.3%. This will decline in the months ahead but should remain far above its 2.7% average growth for the foreseeable future.
The savings rate surged from 13.6% in February to 27.8% in March. With the savings rate so high consumer spending will continue at a brisk pace for many months to come.
With the 27.8% savings rate so elevated there is about $4.5 trillion of surplus savings (savings above the normal 7.0% pace). Those funds are liquid and available for consumers to spend at any time.
We expect GDP growth of 11.0% in Q2. We expect to see GDP growth for 2021 as a whole of 8.0% as the vaccine gets distributed and consumers feel more comfortable going out to eat and travel, and as liquid funds from the inflated savings rate get spent.