Personal income fell 2.0% in March from February. Wages and salaries declined 3.1% in March. The declines were due to widespread layoffs and reduced hours that led to sharp reductions in earnings. Spending was down 7.5% in March from the prior month as consumers stopped buying durable goods to protect household balance sheets and spending on services dropped 9.5% while consumers stayed at home and/or businesses closed. Consumer spending on nondurables was up 3.1% as households stocked up on paper goods and nonperishable foods.
The Bureau of Economic Analysis said it was not possible to quantify the declines directly associated with measures to combat the spread of COVID-19, but it was clearly the main driver of the sudden and steep change of direction.
The sharp increase in the savings rate in March to 13.1 from 8.0 in February is a strong indicator that households are preserving cash where they can in the face of an uncertain future. It is likely that wherever possible, tax refunds and relief checks are going directly into savings accounts.
The PCE deflator for March was up 1.3% year-over-year after up 1.8% in the prior two months. The dip in upward price pressures is associated largely with the drop off in energy prices. Excluding food and energy, the PCE deflator was up 1.7% in March.
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