By Jeffry Bartash
The numbers: Americans boosted spending by 0.9% in April as they went out to eat, rented hotel rooms and bought more new cars, suggesting the economy was still expanding at a steady clip.
Economists polled by The Wall Street Journal had forecast a 0.7% increase.
Higher prices due to inflation only accounted for a small part of the uptick in spending last month. A key measure of inflation included in the report rose by 0.2% in April , government figures showed.
Yet after factoring in inflation, consumer spending still rose at a robust pace.
What’s given Americans some extra cushion to spend are risings wages. Incomes rose 0.4% in April, reflecting a tight labor market in which employers have to pay more to retain workers.
Millions of Americans have quit one job for another and gotten a raise in the process.
Wages for most people are not keeping up with inflation, however.
Big picture: The U.S. is facing stiff headwinds from high inflation and rising mortgage rates, but the strongest labor market in decades is keeping the economy afloat.
Americans feel secure in their jobs and are raking in higher pay, though not enough to fully offset higher prices. The economy is likely to keep forging ahead so long as that remains the case.
Key details : Consumers bought more new cars and trucks in April. They also went out to eat more, traveled and rented hotels rooms and other accommodations.
Spending on gasoline fell between March and April — mostly because a temporary lull in prices. That reprieve didn’t last long, as gas prices jumped in May to a record high.
Because spending has continued to outstrip income, the U.S. savings rate fell to a 14-year low of 4.4% from 5% in the prior month.
The falling savings rate suggested Americans were spending the rest of their stimulus money, perhaps to keep up with rising prices for most goods and services. But they can’t keep dipping into their savings again and again, economists say.
Looking ahead: “Having a steady paycheck is key and the still-tight job market assures that support,” said senior economist Jennifer Lee of BMO Capital Markets. “But high inflation is eating away at what one can buy.”
Market reaction: The Dow Jones Industrial Average (DOW:DJIA) and S&P 500 (S&P:SPX) rose in Friday trades, setting the stage for the third increase in a row.