American’s spent more in April than they did in March—and bought less.
The Commerce Department on Friday reported that consumer spending rose 0.5% in April from a month earlier, which, coming after March’s government stimulus-check-fueled surge, was impressive. The gain was driven by a 1.1% increase in spending on services—an indication of how, with Covid-19 cases dropping and vaccination rates rising, consumers are shifting their behavior. Spending on goods actually declined, with the weakness concentrated in spending on nondurable goods such as groceries and cleaning products.
But a closer look at April’s overall gain indicates it was mainly driven by price increases. By the Commerce Department’s measure, which is the Federal Reserve’s preferred gauge of inflation, consumer prices rose 0.6% in April from March, putting them 3.6% above their year-earlier level. As a result, real, or inflation-adjusted spending declined. Core prices, which exclude the often volatile food and energy categories to better capture inflation’s underlying trend, were up 0.7% from March, and 3.1% on the year. The Fed’s inflation goal is 2%, though it has said it will tolerate higher readings than that for some time.