By Natalie DeCoste
Consumers are spending more money on products and services as vaccination rates increase and states lift business restrictions across the country.
According to the Commerce Department, consumer spending, the biggest source of economic demand in the U.S., rose 0.5% in April after a surge in March. The report showed that personal consumption expenditures (PCE) increased by $80.3 billion.
The PCE price index increased 3.6% in April from the same period last year, reflecting increases in both goods and services. Energy prices rose 24.8%, while food prices increased 0.9%. With the exclusion of food and energy, the PCE price index increased 3.1% during April from one year prior.
The report indicates a positive outlook for the U.S. economy as it recovers from the pandemic. These numbers suggest that Americans are increasingly comfortable enough to go out in public and buy things in person. This is a shift that economists say is crucial to getting the economy back to normal.
Consumer spending increased $112.6 billion for services, partly offset by a $32.3 billion decrease in spending for goods.
“Within services, the largest contributors to the increase were spending for recreation services and for food services and accommodations. Within goods, a decrease in nondurable goods was partly offset by an increase in durable goods. Within nondurable goods, the decrease was widespread and led by food and beverages. Within durable goods, the increase was accounted for by an increase in motor vehicles and parts,” explained the report.
The report revealed that disposable personal income (DPI) decreased by $3.22 trillion, equivalent to 14.6%. Personal income also decreased by $3.21 trillion, which is 13.1%.
“The decrease in personal income in April primarily reflected a decrease in government social benefits (table 3). Within government social benefits, “other” social benefits decreased as economic impact payments made to individuals from the American Rescue Plan Act of 2021 continued, but at a lower level than in March,” read the report.
Despite these drops, it appears Americans are still well-positioned to continue spending in the next few months. While the 13% drop is the most significant on record, that is likely a reflection of the previous month’s surge brought on by the stimulus checks. Moreover, even with the decline, household income was 11% higher than in February 2020, the month before the pandemic hit the U.S.
The report also warned of higher inflation on the horizon, a warning that several economists have raised. The Commerce Department’s inflation measure showed that consumer prices rose 0.6% in April from the month prior and 3.6% from a year earlier. Core prices, which excludes energy and food, rose 0.7% over the month and 3.1% over the year.
