Americans’ incomes zoomed higher at record speed in March

The economic recovery is underway and while there’s still plenty of work to be done, new data on Americans’ incomes shows the government’s spending efforts are bearing fruit.

American wallets got a big cash injection in March as personal incomes rose 21.1%, or $4.2 trillion, marking the largest monthly increase on record, the Bureau of Economic Analysis reported Friday.

It was also a reversal of the prior month’s decline and more than economists had predicted. Disposable income rose 23.6%, or just below $4.2 trillion, which is also a record.

This jump in incomes was largely due to the increase in government benefits, including stimulus checks, the BEA said.

That’s a good sign, because even though millions of American workers remain unemployed — the nation is still down more than 8 million jobs as of last month — consumer spending is vital to the economy and it’s hard to spend without a steady income. The labor market recovery is also chugging along, with 916,000 jobs added back in March.

Consumer spending rose 4.2% in March, also reversing a decline in February. Congress passed the President Joe Biden’s $1.9 trillion stimulus package in mid-March, which included another round of direct payments to qualifying individuals.

Consumer sentiment is also improving. The University of Michigan’s survey results released Friday showed that consumers’ overall sentiment, perception of current economic conditions and expectations for the future all improved in April. This was “due to a growing sense that the upward momentum in jobs and incomes will persist,” said Richard Curtin, chief economist of the survey of consumers.

Higher prices

All the increased spending is causing prices to rise.

This is an expected effect, but some investors and economists worry that inflation could spike and the economy overheat.

Economic activity is getting a big boost from the government’s record-breaking stimulus programs and the gradual return to business as usual as the vaccine rollout continues. That’s why prices are rising.

Consumer prices climbed 0.5% in March, according to Friday’s report, but year-over-year the PCE price index is now up 2.3%.

If inflation rises too fast, the Federal Reserve, whose jobs it is to keep inflation steady, might have to make a U-turn on its monetary policy.

So far, the Fed has been staying the course with ultra-low interest rates and bond purchases, reiterating time and time again that it is looking for a return to full employment as well as inflation slightly above 2% for the medium term before it will change policy.