COVID-19 Checks Likely Drove Record Rise in Household Income
In March 2021, household income rose at a record pace of 21.1 percent, the largest monthly increase since 1959. This is largely due to the federal stimulus payments amidst the COVID-19 pandemic, which accounted for $3.948 trillion of the overall $4.213 trillion income increase in March.
The Commerce Department found that spending was up 4.2 percent in March, and that consumers are spending money on more big-ticket items like cars and furniture instead of services. However, economists anticipate that to change as vaccinations increase and the economy continues to reopen.
“If we have COVID-19 cases under control, that would ideally make way for us to reopen the services sector of the economy,” stated Pooja Sriram, U.S. economist at Barclays. “That, in fact, is a crucial aspect of ensuring that this recovery continues.”
The Wall Street Journal highlighted that spending is likely to continue increasing because Americans have the money to spend, particularly as personal-saving rose to its second highest rate on record at 27.6 percent in March. That amount is up nearly $5 trillion from February 2020, before the pandemic shut down large sectors of the economy.
Additionally, increased consumer spending will likely drive up inflation in the near term, which could cause companies to increase wages. The employment cost index showed salary and wage costs rose 1 percent in the first quarter of 2021. Private wages and salaries increased 3 percent in the same quarter, returning to the same rate of growth prior to the pandemic.
Federal Reserve Chairman Jerome Powell said that price pressures from reopening are likely to be temporary. “One-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation into the future. Indeed, it is the Fed’s job to make sure that that does not happen.”