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Economic Report: Consumer spending climbs sharply again — and not just because of inflation

The numbers: Americans boosted spending by 0.9% in April as they went out to eat, rented hotel rooms and bought more new cars, suggesting the economy was still expanding at a steady clip.

Economists polled by The Wall Street Journal had forecast a 0.7% rise in spending.

Higher prices due to inflation only accounted for a small part of the uptick in spending. A key measure of inflation included in the report rose by 0.2% last month, government figures showed.

Yet after factoring in inflation, consumer spending still rose at a robust pace.

What’s given Americans some extra cushion to spend are higher wages. Incomes rose 0.4% in April, reflecting a tight labor market in which employers have to pay more to retain workers. Millions of Americans have quit one job for another and gotten a raise in the process.

Big picture:  The U.S. is facing stiff headwinds from high inflation and rising mortgage rates, but the strongest labor market in decades is keeping the economy afloat.

Americans feel secure in their jobs and are raking in higher pay, though not enough to fully offset higher prices. The economy is likely to keep forging ahead so long as that remains the case.

Market reaction: The Dow Jones Industrial Average
DJIA,
+1.61%

and S&P 500
SPX,
+1.99%

were set to open higher in Friday trades.

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