WASHINGTON — Americans' incomes went up faster than their spending did last month, the first time that's happened since October. Now with extra cash in their pockets, consumers are expected to spend briskly in the coming months.
Personal income, which includes wages, interest and government benefits, increased by a sizable 0.7 percent in March, a little stronger than many analysts anticipated.
Solid wage gains, hiring for the 2000 Census and federal subsidy payments to farmers helped boost incomes last month, the government said.
"The story behind income growth implies that future spending will advance because consumers have the money to spend. It all comes back to jobs, jobs, jobs," economist Richard Yamarone said. "The solid job growth that we have had fuels income growth, which fuels spending."
The record-breaking economy, in its longest-ever streak of uninterrupted growth, has pushed the nation's unemployment rate to near a three-decade low of 4.1 percent.
With plentiful jobs, rising incomes, stock market gains and low inflation, Americans have been feeling in the mood to spend.
Consumer spending, which accounts for two-thirds of all economic activity and is the locomotive of the speeding economy, rose a brisk 0.5 percent in March, right on target with many analysts' expectations.
"Consumers continue to be avid spenders and continue to enjoy healthy income gains," economist Mark Zandi of RFA Dismal Sciences said. "I think the report indicates continued solid spending growth through the spring."
Economists said the report is the latest evidence of a rapidly growing economy that needs to be slowed to a more sustainable pace through higher interest rates.
On Wall Street, the blue-chip Dow Jones industrial average fell 154.19 points to close at 10,733.91, rattled by fears of higher interest rates. But a continued technology-stock rally sent the tech-heavy NASDAQ 86.63 points higher to finish at 3,860.66.
In February, Americans spent all they earned and more. Spending grew by a torrid 1.4 percent, the strongest pace since 1994, while income rose 0.4 percent.
And, in the first three months of this year, consumers went on their biggest shopping spree in nearly 17 years, catapulting spending up by a rate of 8.3 percent.
The Federal Reserve has boosted interest rates five times since June 30 to slow the economy, which grew at a 5.4 percent rate in the first quarter.
The Fed's rate increases are designed to raise borrowing costs for big-ticket items such as homes and cars and in that way cool off demand and keep inflation from getting out of hand.
Given the outlook for continuing strong economic growth supported by hardy consumer spending, many analysts expect the Fed will boost rates again on May 16. Some analysts said the central bank may raise rates by a half-point rather than the more moderate quarter-point increases the Fed has used in its last five rate moves.
In March, Americans' wages grew by a strong 0.7 percent, up from a 0.3 percent rise in February. Federal subsidy payments to farmers helped lift farm proprietors' income, which increased 18.6 percent in March, following a 2.7 percent gain the month before.