Original Article By Wolf Richter At WolfStreet.com
It boils down to this: Total personal income from all sources have increased nicely, but all those increases plus some have been getting eaten up since last summer by raging inflation, and this happened again in March, when “real” income continued to decline. That’s the thievery of inflation.
But consumers – not all but enough to move the needle – are sitting on cash, stock and crypto gains, (still, but declining), and they’re sitting on the cash they extracted from their homes last year via cash-out refis while mortgage rates were low, and they’ve got room on their credit cards, and they’re spending this money. And spending, adjusted for inflation, rose again.
But Americans are shifting away from buying goods to buying services again. The pandemic-era goods-buying binge that exploded the trade deficit and contributed to all kinds of shortages is slowly losing oomph, and spending on goods fell. But spending on services rose faster, and overall spending inched up.
Real incomes fell.
“Real” (inflation adjusted) personal income from all sources, including income from wages and salaries, dividends, interest, rentals, farms, businesses, and government transfer payments (stimulus, Social Security, unemployment, welfare, etc.) fell by 0.4% in March from February, seasonally adjusted, and plunged by 17% from a year ago, when incomes were inflated by stimulus payments, according to the Bureau of Economic Analysis today (purple line in the chart below).
“Real” income without transfer payments fell by 0.3% in March from February, seasonally adjusted, having declined steadily since October, when raging inflation began to overpower income gains. Compared to March last year, it was still up by 1.9% (red line).
Both real income measures are well below the pre-pandemic trend lines:
Real spending rose.
Total consumer spending on goods and services, adjusted for inflation, ticked up 0.2% in March from February, to a new record and was up 2.3% from stimulus-miracle March last year:
Real spending on services jumped.
Inflation-adjusted spending on services – air fares, rental cars, theater tickets, theme parks, cruises, healthcare, housing, education, haircuts, repairs, etc. – jumped by 0.6% in March, and by 6.3% year-over-year. Over the past two months, it just barely regained the levels of three years ago and remains below pre-pandemic trend. But as you can tell, it’s coming back:
Spending on services in March accounted for 61.6% of total consumer spending, down from 64.3% pre-Covid, which shows that services still have a long way to go in their recovery, as goods continue to fade in the spending scheme.
And the increase in real spending on services in March and recent months is what has been driving the increase of total spending, overpowering the decline in spending on goods.
Real spending on goods continued to fall.
Spending on nondurable goods – mostly food, fuel, and household supplies – adjusted for inflation, fell by 0.3% for the month and by 0.8% from a year ago. During the pandemic, amid working from home, spending on nondurable goods had shifted to the household from company venues, and that massive surge in spending is just now unwinding a tiny little bit, and remains at nose-bleed levels, 13% higher than in March 2019:
Spending on durable goods, adjusted for inflation dropped 0.9% in March, and 10.7% from stimulus-miracle March last year. But it remains at nosebleed levels, up 24% from March 2019. This is still a huge amount that consumers are spending on durable goods (adjusted for inflation) and is still a large contributor to the shortages in all kinds of things.
But that stimulus-miracle spike is getting unwound step by step, and it looks like an uneven regression toward the mean: