On Thursday, data from the Commerce Department showed U.S. prices continue to jump higher as consumers spend more on goods, housing, and imports.
Personal consumption expenditure jumped 11.3 percent between January and March, an unexpected increase from the preliminary estimate of 10.7 percent.
The revision to consumer spending indicates the economy is on a stronger footing as the year began than was originally thought, bringing into question the need for the Biden administration’s costly American Rescue stimulus plan.
Price increases were also revised upward, indicating stronger inflationary pressures. The personal consumption price index rose 3.7 percent, up from the earlier estimate of 3.5 percent and a big acceleration from the 1.5 percent increase recorded in the fourth quarter of 2020.
Excluding volatile food and energy prices, core PCE inflation increased 2.5 percent, up from the earlier estimate of 2.3 percent and 1.3 percent in the fourth quarter.
Consumption spending on goods soared 11.3 percent, compared with the earlier estimate of 10.7 percent. Durable goods spending jumped 25.6 percent and nondurables 48.6 percent, compared with the advance estimates of 23.6 and 41.4.
Spending on services expanded 4.6 percent, as estimated earlier. Services spending increased more slowly in the first quarter due to many businesses remaining fully or partially closed.
Imports were revised higher, with spending on imported goods rising 6.5 percent versus 5.5 estimated earlier. Imported services rose 7.6 percent versus the earlier 6.5 percent estimate. This is another indicator that consumer demand was stronger than thought in the first quarter. But imports subtract from Gross Domestic Product because spending by U.S. consumers does not become income for U.S. workers. In short, some of the stimulus payments went into spending on goods and services made abroad.
Housing expenditures jumped 12.7 percent, up from the earlier estimate of 10.8 percent.
The revisions to consumer spending, housing investment, and inflation may provide material to opponents of President Joe Biden’s big spending plans.
On Thursday, the New York Times reported that the Biden administration plans to propose a budget over $6 trillion, nearly $2 trillion larger than the pre-pandemic budget.
The estimate for first-quarter Gross Domestic Product growth remained unchanged at 6.4 percent. The increases in consumer spending were offset by a decline in exports. Many of the trading partners of the U.S. lag in terms of economic recovery, vaccinations, and control of pandemic.