The US Spending Surge Is Underway

Household spending fell back in February after January’s stimulus-led surge. But March and April are set to rebound on yet more stimulus and a broader re-opening so we are penciling in 9% annualized consumer spending growth in the first quarter and 15% in the second.

Shoppers in New York

Stimulus payments creates a strong platform for growth

To get any meaning out of the February personal income and spending report we need to look at it in combination with January data. The $600 stimulus payment in early January, together with ongoing support from extended and uprated unemployment benefits, lifted incomes by 10.1% MoM. Put another way, as the chart below shows, household incomes were $2.5tn higher on an annualized basis versus February last year. An astonishing figure, that has given Americans the cash flow to not only spend more, as seen with the upwardly revised 3%MoM real spending growth figure for January but to also pay down credit card balances and to save more.

The Federal Reserve’s flow of funds data shows that cash, checking, and savings deposits have increased by $3tn since 3Q19. That means as the re-opening gathers momentum there is an incredibly strong platform for consumer spending growth.

The fact that there wasn’t a stimulus payment in February accounts for all of the 7.1% January to February drop in incomes, but again it is important to point out that income levels this February are still $1tn annualized higher than they were last February. With another $1,400 stimulus payment having hit bank accounts in March – nearly $400bn has been paid out by the government - we must be looking for a huge surge in March and April income data.

Incomes have soared through the pandemic

Contributions to the change in household incomes versus Feb 2020 (USDtn)

(Click on image to enlarge)

Source: Macrobond, ING

Spending is surging and will accelerate

February spending fell 1.2%MoM after that 3% January jump. People may well be getting tired of buying physical things as this is all that we have been able to do over the past year. Bad weather in February could also have influenced the data. However, March and April are likely to post incredibly strong spending figures.

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Disclosure: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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