Without Stimulus Checks, Personal Income Dropped 13% from March to April

Without March's one-time individual stimulus checks providing a boost, personal income in the U.S. dropped 13.1% from March to April, according to a report from the Commerce Department.

Billions of dollars in stimulus checks were distributed in March, which led to a record 20.9% income gain and the drop in April's personal income was expected, the Associated Press reported. In April, Americans increased their spending by 0.5% compared to March's 4.7% spending increase.

"When provided with the ability to spend in a safe way, consumers have the will and the desire to do so," Lydia Boussour, lead U.S. economist for Oxford Economics, told the Associated Press.

Although April's spending increase was less than March's, it still reflects a rebounding economy following the onset of the global pandemic. Consumer and business spending has largely contributed to a 6.4% growth in the U.S. economy from January to March, according to government estimates.

For more reporting from the Associated Press, see below.

Help Wanted Sign At a Mall
Help Wanted Sign in the window of a clothing store located in Natick, Ma., at The Natick Mall on 10/25/14. Without stimulus checks in April, personal income dropped 13.1 percent from March to April. Richard Berkowitz/Getty Images

Personal incomes provide the fuel for spending.

In addition, the Commerce Department's report showed that inflation by a measure preferred by the Federal Reserve surged a bigger-than-expected 3.6% for the 12 months ending in April. Excluding volatile food and energy, the so-called core increase was still a high 3.1%. Both figures are far above the Fed's 2% target for inflation.

The April gain in consumer spending supported the view that the economy is rebounding rapidly as individuals and businesses grow increasingly confident enough to spend, hire and invest.

The economy is thought to be expanding even faster in the current April-June quarter. The outlook for the rest of the year is brightening, too, on the strength of trillions of dollars more in government support, increased mobility as vaccinations keep increasing and a surge in pent-up consumer demand. More Americans are venturing out to shop, travel, dine out and gather in large groups at sporting and entertainment venues. For 2021 as a whole, many economists foresee growth, as measured by the gross domestic product, achieving its fastest pace since at least 1984.

During much of the past year, spending on services — from haircuts to airline tickets to restaurant meals — plunged as Americans hunkered down at home and spent mainly on physical goods. Now, as people increasingly spend on services again, economists will be watching to see if they pull back on their purchases of goods or instead spend freely on both goods and services.

In the meantime, as the recovery rapidly expands, one major risk looms: Inflation, dormant for years, could begin to accelerate and might compel the Fed to respond with interest rate hikes that could derail the recovery. Inflation has been surfacing in the prices of some goods and services — a result, in many cases, of supply shortages.

When asked recently about the rise in inflation, Chair Jerome Powell and other Fed officials have said repeatedly that they believe the inflation spikes that have surfaced with some goods and services — a result, in many cases, of supply shortages — will prove temporary. On Thursday, Treasury Secretary Janet Yellen echoed this sentiment but also cautioned a House committee that the economy could endure a "bumpy" period with high inflation through year's end.

In its report Friday on spending and income, the government also reported that the savings rate stood at a still high 14.9% in April, down from 27.7% in March. Many Americans built up saving over the past year, either from government stimulus checks or from hunkering down at home and avoiding much spending. Economists generally believe that the pool of savings will help fuel the spending boom they envision in the coming months.

Nordstrom Store Seeking Employees
A customer walks behind a sign at a Nordstrom store seeking employees, Friday, May 21, 2021, in Coral Gables, Fla. The number of Americans seeking unemployment benefits dropped last week to 406,000, a new pandemic low and more evidence that the job market is strengthening as the virus wanes and economy further reopens. Marta Lavandier/AP Photo