Americans are showing a renewed willingness to spend their money. Maybe this time it will have some legs.
Consumer spending rose 1% in April from a month earlier, the Commerce Department reported Tuesday. That marked the strongest gain since August 2009. It was also stronger than the 0.7% economists anticipated; they duly ratcheted up their second-quarter spending forecasts as a result. J.P. Morgan, for example, now expects inflation-adjusted spending to increase at a 3.5% annual rate, versus its previous estimate of 3.2%.
That would be good news following the first quarter’s tepid 1.9% gain. But given spending’s fitful pattern in recent years, it is natural for both investors and the Federal Reserve to be skeptical over whether the pickup is sustainable.
It may be that, just as the trajectory of spending was lower in the expansion that ended in 2007 compared with the 1990s expansion, spending in the current expansion is doomed to be lower still.
Still, the backdrop for spending seems to be getting better. With the labor market adding jobs, overall wage and salary income has been steadily gaining ground. And more Americans may feel good enough about their financial situation to spend a bit more of their take-home pay.
Indeed, the personal-saving rate—money not spent as a share of after-tax income—slipped to 5.4% in April from 5.9% in March. While the monthly figures can be volatile, the drop could be an indication that after two years of moving higher, the saving rate has reached its comfort level. That would allow more of the gains in wages and salaries to flow through to spending.
And that could shift the economy into a higher gear.