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As inflation bites, personal income has remained high

Americans continued to add more money to their wallets in April, but found it would not go as far as it did at this time last year, data showed Friday.

Personal after-tax income rose 0.3% last month, but fell 0.3% from the same month last year, reflecting the government’s distribution of stimulus checks in 2021. Adjusted for adjusted for inflation, this measure of income was flat for the month, but down 6.2% from a year ago. Spending rose 0.9% in the month, but grew less in real terms as inflation continued to rise at its fastest pace in decades.

The new figures, from the Commerce Department, suggest that after two years of Covid restrictions, consumer appetite is robust despite shortages of goods, overbooked planes and soaring oil prices driving up the cost of daily life. Economists increasingly expect momentum to slow as the Federal Reserve attempts to cool the U.S. economy with interest rate hikes and tapering pandemic stimulus.

“At least in the second quarter, consumers really had their wallets wide open,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. “We think that eventually it will have limits. Right now we all feel pent up and just need to travel. But next year is a different story.

In recent months, more spending has gone into experiences such as hotel stays, concerts and haircuts, as people have felt more comfortable in crowded spaces. Goods prices, although disrupted by ongoing supply chain issues and the war in Ukraine, rose faster than the cost of services. Adjusted for inflation, spending on goods rose 1% during the month, while spending on services rose 0.5%.

This dynamic has rattled big-box stores like Walmart and Target, which have found themselves unable to pass on the higher costs to shoppers. Stocks at discount retailers like Dollar Tree, on the other hand, jumped on Thursday as they reported increased sales and raised their profit forecast.

The ongoing consumer frenzy in the United States has been fueled by very low unemployment and relatively strong wage increases, especially at the lower end of the income scale. A snapshot of Americans’ financial health conducted last fall and released by the Federal Reserve this week found that 78% of respondents felt they were “doing at least well” – the highest rate in nine-year history. of the investigation.

That sense of financial well-being during the pandemic had been bolstered by bank accounts fattened by government stimulus checks and the cutting of spending on things like office clothes and business travel. But while household balance sheets remain healthy, data from April shows people are putting aside less as a percentage of their disposable income than they were even before the pandemic began. The personal savings rate fell to 4.4%, the lowest since September 2008, from 5% in March.


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