Americans’ incomes and spending rose in April, a sign of economic resilience amid rising prices and warnings of a possible recession.
Consumer spending rose 0.8% in April, the Commerce Department said on Friday. The increase came after a two-month slowdown in spending and beat analysts’ expectations as Americans spent money on cars, restaurant meals, movie tickets and other goods and services.
After-tax income rose 0.4 percent, driven by a strong job market that continues to raise wages and bring more people into the workforce. Labor Department data this month showed that Americans in their first few years on the job were employed in April at the highest rate in more than two decades.
Separate data released by the Commerce Department on Friday showed that a key measure of business investment also rose in April, a sign that corporate executives don’t expect a big drop in demand in coming months.
Consumer resilience is a mixed blessing for Federal Reserve officials, who worry that robust spending is contributing to inflation but also don’t want inflation to slow so quickly that the economy slips into recession. The gradual slowdown in spending seen in recent months is largely consistent with the “soft landing” scenario that policymakers are aiming for but fear declaring victory too soon – a concern that April’s data, which showed persistent inflation alongside of stronger spending, I could underline.
“The odds of a recession are down again,” Robert Frick, corporate economist at Navy Federal Credit Union, wrote in a note to clients on Friday. “The only problem with the report is that inflation remains stubbornly high and could tempt the Fed to raise the federal funds rate even further when a break was on the table,” he added, referring to the upcoming meeting of policymakers in June.
It’s unclear how long consumers can continue to sustain the economic recovery. The savings some households hoarded during the pandemic have started to dwindle, and there are signs that businesses are starting to pull back on hiring. The impasse over the debt limit could further dent the economy’s momentum, although there were signs late on Thursday that leaders in Washington were hammering out a deal to avoid a default.