Personal income jumped by more than $4 trillion last month, a record 21.1 percent increase, the Bureau of Economic Analysis reported on Friday. Economists had been predicting a spike as stimulus payments reached people’s bank accounts and the improving economic picture pulled more displaced workers off the sidelines, but the increase exceeded even their optimistic projections.
“All the stars are aligning,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors. “You have the recovery from the coronavirus and all the fiscal stimulus colliding into really robust economic growth.”
More data released this week showed that the economy — like many Americans — has had a potent shot in the arm. On Thursday, the government reported that GDP grew by an annualized 6.4 percent rate in the first quarter of 2021. Consumer spending, which comprises about two-thirds of the nation’s economic activity, grew by an annualized 10.7 percent.
The emergence of a more confident consumer both reflects and contributes to these economic gains: The University of Michigan’s Surveys of Consumers reported that consumer sentiment rose 4 percent in April from the month before, with a whopping 23 percent improvement from April 2020. People’s outlook about both current economic conditions as well as their expectations for the future also rose.
Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, expressed optimism that the coming months will continue to produce greater economic improvement. “Progress on vaccinations should allow the U.S. economy to fully reopen this summer, leading to rebound in services spending and consumers using some of their savings,” he said.
The fact that much of March’s household spending was on products rather than services — expenditures on goods jumped by 23.6 percent — was a reflection of the constraints the pandemic had placed on Americans’ ability and willingness to fly, eat out, attend concerts and the like. Even with these limitations, though, spending on services inched up 4.6 percent — an encouraging sign for the coming months, analysts said.
As service sector activity picks up, so does hiring. Data from job site Indeed.com found that job openings are now roughly 22 percent higher than they were in February 2020, before Covid-19 wreaked havoc on the economy.
“It's a great sign that we continue to see job postings pick up,” said Nick Bunker, an economist at Indeed, adding that the expansion has been broad-based, with more open positions in white- and blue-collar professions. “The biggest factor holding back the labor market right now — the pandemic — seems to be receding.”
“One of the encouraging signs in the last month or so is that we're starting to see a pickup in postings in really hard-hit sectors.”
Hospitality and tourism jobs are still down from pre-pandemic levels, but are improving, Bunker said, while restaurant and bar job openings have rebounded over the past four to six weeks. “One of the encouraging signs in the last month or so is that we're starting to see a pickup in postings in really hard-hit sectors,” he said. “We’re seeing an acceleration in these job postings. That's great to see.”
Moody’s Investors Service vice president William Foster observed in a recent research note that spending on services remains constrained, and has been mired at roughly 8 percent below pre-pandemic benchmarks since the middle of 2020. He said the American Rescue Plan signed into law by President Joe Biden last month would help to increase that demand. “The Covid-19 relief bill that Biden signed in March, alongside ongoing vaccine rollout, has set the stage for a rebound in spending on services,” he wrote.
The evolving public health situation is both the biggest driver behind the optimism as well as the biggest risk that still lies ahead.
“We think now that there's the ability to get vaccinated, that the virus is obviously not eliminated, but contained from an economic perspective,” said Jay Hatfield, CEO of Infrastructure Capital Advisors. “It transitions from a societal issue to a personal issue,” which diminishes the impact to the economy on a broad scale.
The caveats there are that if a large number of Americans remain resistant to getting the vaccine, as polling has suggested, the potential for localized outbreaks of Covid-19 or the emergence of a more virulent variant could rapidly unravel much of the progress that has been made. “We have seen the pace of vaccinations slow down. I think that’s something to keep an eye on,” Bunker said, adding that until the pandemic is definitively in the rear view mirror, that cloud will remain. “The pandemic seems to be abating, but it’s still not behind us,” he said.
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