Incomes decline less than spending in March

U.S. incomes fell in March but not as much as spending, pushing the savings rate to its highest level in 39 years, the government said Thursday. Income fell 2% in March, with an identical decline in disposable income.

At the same time, spending slumped a record 7.5% last month. The spending data was not a surprise as it was contained in the first quarter GDP report released Wednesday, which showed consumer spending contracted at a 7.6% annual rate in the first quarter.

Inflation pressures eased in March. The closely watched PCE price gauge fell 0.3% in the month, pushing down the increase over the past year to 1.3% from 1.8%. The core PCE price index slipped to a yearly rate of 1.7% from 1.8%.

What happened: With spending falling faster than income, the savings rate shot up to 13.1% from 8% in February. That’s the highest rate in 39 years.

Spending declined for services, such as health care, dental and food services. Within goods, the leading decline was spending on autos. Real spending on groceries rose 19.1% in the month.
Wages and salaries fell 3.1% in March, the government said.

Big picture: The shutting of businesses and the stay at home orders to combat the coronavirus pandemic have damaged consumer spending, the engine of the U.S. economy. There should be another sharp drop in the second quarter, before some improvement, economists think. At the same time, economists believe that inflation is headed even lower over the next few months.