Economists Estimate Consumers’ Shift to Travel and Dining Out Boosted March Spending

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Commerce Department to release household-outlays report at 8:30 ET Friday morning

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Friday’s report is also expected to show year-over-year inflation cooled in March for the first time in a year and a half, the economists said. Still, they estimate the personal-consumption-expenditures index measure of core inflation, which excludes volatile food and energy costs, rose a historically high 5.3% in March from a year earlier.

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Higher spending partly reflects that strong inflation, as prices for everything from gasoline to restaurant meals have risen. Meanwhile, in recent months, Americans have increased spending on services as Covid-19 pandemic concerns about going out have faded for many.

“We think consumers are going to continue to rotate more services toward spending,” said Kathy Bostjancic, chief US economist at Oxford Economics. She expects the pickup in consumer spending should be sustainable, “but there are obviously large headwinds facing the consumer right now,” like inflation and supply-chain disruptions as a result of lockdowns in China.

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Separate data from the Commerce Department released Thursday showed inflation-adjusted consumer spending for the first quarter as a whole rose at its fastest pace since last spring, boosted by spending on services like restaurant meals and healthcare.

Outlays on both services and durable goods like cars picked up, even amid the brunt of the Omicron wave of Covid-19, rising inflation and supply-chain strains.

“The consumer has money. They pay down credit-card debt. Confidence isn’t high, but the fact that they have money, they’re spending their money,” JPMorgan Chase & Co. Chief Executive Jamie Dimon said on an earnings call earlier this month. He expected that to continue in the second and third quarters, though inflation and the war in Ukraine pose challenges to the economic outlook, he said.

The consumer spending figures come amid mixed signals from the broader economy. The unemployment rate was a low 3.6% in March and workers’ wages grew, but US gross domestic product contracted at a 1.4% annual rate in the first quarter of 2022.

That was largely due to a widening of the trade deficit, thanks to strong consumer demand for imports, and slower inventory stocking by companies. Analysts expect the weakness to be short-lived: Economists surveyed by the Journal earlier this month expected a growth rate of 3% in the current second quarter.

Many US consumers are rethinking their spending habits amid continued high inflation.

In the San Francisco Bay Area, Michael Williamson is feeling the pain of higher prices at the pump. The cost to fill up his sport-utility vehicle has jumped to $130 from about $70 in 2018.

“As prices really start to skyrocket, I’m looking more closely and focused on things I need in the immediate here and now,” said Mr. Williamson, who took early retirement as general counsel at a medical technology company.

Grocery prices have also risen steeply, he said. “I’m not buying filet mignons and bottles of fine wine at this point,” the 51-year-old said. He is planning to “travel locally, do day excursions from home, a staycation,” and forgo travel abroad this summer as a result of rising transportation costs and onerous Covid-19 testing requirements.

Write to Harriet Torry at [email protected]

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Credit: www.wsj.com /

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