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The numbers: Consumer spending jumped 0.8% in April as Americans bought more new cars and other goods and services, underscoring the resilience of the U.S. economy in the face of higher interest rates.
Analysts polled by the Wall Street Journal had forecast a 0.4% gain. The increase in consumer spending was the biggest in three months.
Incomes rose 0.4% in April, the government said Friday.
Consumer spending is the main engine of the U.S. economy. Households have cut back since last year, but they are still spending enough to keep the economy moving and avert a widely predicted recession.
Key details: Americans spent more last month on new cars as more models become available and dealers offered greater incentives. Yet vehicle sales have been up and down for months and that pattern is likely to continue.
Consumers also spent more on drugs, financial advice, insurance and other services.
The U.S. savings rate fell for the first time since last year, to 4.1% from 4.5%. Savings had fallen in 2022 to the lowest level since 2005.
The personal consumption expenditures index, the Federal Reserve’s preferred inflation barometer, increased by a sharper-than-expected 0.4% in April.
Big picture: Higher prices have forced households to pay more than they would like on everyday items, but Americans have increased spending even after inflation is taken into account.
A lot of that money is going toward travel, recreation and other services, a sign of confidence in the economy. That kind of spending is the first to dry up in tough times.
Whether consumers can keep it up will determine whether the U.S. avoids a recession. Higher borrowing costs have added to their stress, but rising wages and the lowest unemployment rate since the late 1960s are winds at their back.
Looking ahead: “The odds of a recession dropped again, as Americans made more and spent more even adjusted for inflation,” said Robert Frick, a corporate economist at Navy Federal Credit Union.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
rose in Friday trades.
