Consumer spending shifts from goods to services, inflation crushes incomes, but ‘real’ spending hits record high

There is still a lot of money circulating there.

By Wolf Richter for WOLF STREET.

It boils down to this: total personal income from all sources has increased, but all of these increases more a few have been plagued since last summer by galloping inflation, and this was repeated in March, when “real” incomes continued to fall. It is the flight of inflation.

But consumers — not all but enough to move the needle — are sitting on cash, stock, and crypto gains (still, but falling), and they’re sitting on the cash they’ve extracted from their houses last year via withdrawal refis while mortgage rates were low, they have room on their credit cards and they are spending that money. And spending, adjusted for inflation, rose again.

But Americans are moving away from buying goods to buying services again. The pandemic-era goods-buying spree that blew up the trade deficit and contributed to all manner of shortages is slowly losing momentum and spending on goods has plummeted. But spending on services grew faster and overall spending increased slightly.

Real incomes have fallen.

“Real” personal income (adjusted for inflation) from all sourcesincluding income from wages and salaries, dividends, interest, rentals, farms, businesses, and government transfer payments (stimulus, social security, unemployment, welfare, etc.) decreased by 0, 4% in March from February, seasonally adjusted, and plunged 17% from a year ago, when revenues were inflated by stimulus payments, according to the Bureau of Economic Analysis today (line purple in the graph below).

“real income without transfer payments fell 0.3% in March from February, seasonally adjusted, after declining steadily since October, when runaway inflation began to dominate income gains. Compared to March of last year, it was still up 1.9% (red line).

Both measures of real income are well below pre-pandemic trend lines:

Actual spending increased.

Total consumer spending on goods and services, adjusted for inflation, rose 0.2% in March from February to a new record high and rose 2.3% from the miracle stimulus of March of last year:

Real spending on services jumped.

Inflation-adjusted spending on services – plane tickets, rental cars, theater tickets, theme parks, cruises, health care, housing, education, haircuts, repairs, etc. — jumped 0.6% in March and 6.3% year-over-year. Over the past two months, it has barely recovered to levels of three years ago and remains below the pre-pandemic trend. But as you can see, it comes back:

Spending on services in March was 61.6% of total consumer spending, down from 64.3% pre-Covid, showing that services still have a long way to go to recover as goods continue to recover. fade in the expenditure regime.

And the increase in real spending on services in March and in recent months is what drove the increase in total spending, dwarfing the decline in spending on goods.

Real spending on goods continued to decline.

Expenditure on non-durable goods – mostly food, fuel and household supplies – adjusted for inflation, were down 0.3% for the month and 0.8% from a year ago. During the pandemic, in the midst of working from home, spending on non-durable goods had shifted to household from corporate workplaces, and this massive increase in spending is happening just a tiny bit right now and staying at nosebleed levels, 13% higher than March 2019:

Expenditure on durable goods, adjusted for inflation, fell 0.9% in March and 10.7% since the March stimulus miracle of 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 contributing always largely to shortages in all sorts of things.

But this stimulus-miracle peak unfolds step by step, and it looks like an uneven regression to the mean:

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