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Summary
Consumer income is growing, but not as fast as inflation. Consumers had to dip into savings to pull it off, but not only did real personal expenditures rise in March, revisions listed real February spending into positive territory as well. Rainy day savings won't last forever, but for now, at least the desire to resume service-sector activity is more powerful than inflation.
Experiences over stuff drives spending gains in March
In the wake of yesterday's negative GDP print, the additional detail from today's March personal income and spending report point to consumer spending growth that is outpacing the fastest inflation in decades.
Revisions to prior months' sales figures now confirm that despite initial reports that inflation outpaced spending in February, the opposite is true: real personal spending was positive in each of the first three months in the first quarter. Admittedly a downward revision to January keeps the level only slightly higher. Still, real PCE rose 0.2% in March, on top of upward revision to February that brought the monthly change to a +0.1% (-0.4% previously).
For months, we have described our expectations for consumer spending to continue to be driven by service outlays and that some of the strength there might come at the cost of slower growth or outright declines in goods spending. That was certainly the case for March. Real durables outlays slipped 0.9% and non-durables outlays fell 0.3%. The much larger services category grew 0.6% after adjusting for inflation; that carried the day and allowed overall real PCE to finish the month up 0.2%. Gains were widespread across services categories and led by “other” services (notably international travel) and discretionary services categories (transportation, recreation & food services), where real spending rose 1.1% after a 2.5% gain in February (chart).
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