Americans’ earnings and spending both rose in April, a sign of economic resilience amid rising prices and warnings of a possible recession.
Consumer spending rose 0.8 percent in April, the Commerce Department said on Friday. The rise followed a two-month slowdown in spending and beat forecasters’ expectations as Americans paid out for cars, restaurant meals, movie tickets and other goods and services.
After-tax income rose 0.4 percent, driven by a strong labor market that continues to push up wages and bring more people into the workforce. Labor Department data this month showed that Americans in their prime at work had their highest employment rate in more than two decades in April.
Separate data released by the Commerce Department on Friday showed that a key measure of business investment also picked up in April, a sign that business executives don’t expect a major slump in demand in the coming months.
Consumer resilience is a mixed boon for Federal Reserve officials, who worry that robust spending is contributing to inflation but also don’t want it to slow so quickly that the economy slips into recession. The gradual slowdown in spending seen in recent months is broadly in line with the “soft landing” scenario policymakers are aiming for, but they have been wary of announcing victory too early – a concern that the Data from April showing persistent inflation alongside higher spending worries. could underline.
“The likelihood of a recession has fallen again,” Robert Frick, a business economist at Navy Federal Credit Union, wrote in a note to clients on Friday. “The only problem emerging from the report is that inflation remains stubbornly high, potentially tempting the Fed to raise interest rates even further if a pause is imminent,” he added, referring to the upcoming meeting of policymakers in the June.
It is unclear how much longer consumers can support the economic recovery. The savings some households had accumulated during the pandemic are beginning to dwindle, and there are signs companies are beginning to pull back on hiring. The standoff over the debt limit could further weaken momentum in the economy, although there were signs Thursday night that leaders in Washington were close to an agreement to avert a default.