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WASHINGTON: US consumer spending rebounded in March amid a surge in income as households received additional COVID-19 pandemic relief money from the government, building a strong foundation for a further acceleration in consumption in the second quarter.

Other data on Friday showed labour costs jumped by the most in 14 years in the first quarter, driven by a pick-up in wage growth as companies competed for workers to boost production. The White House’s massive $1.9 trillion fiscal stimulus and rapidly improving public health are unleashing pent-up demand.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased 4.2% last month after falling 1.0% in February, the Commerce Department said. The increase was broadly in line with economists’ expectations.

The data was included in Thursday’s gross domestic product report for the first quarter, which showed growth shooting up at a 6.4% annualized rate in the first three months of the year after rising at a 4.3% pace in the fourth quarter. Consumer spending powered ahead at a 10.7% rate last quarter.

Most Americans in the middle- and low-income brackets received one-time $1,400 stimulus checks last month which were part of the pandemic rescue package approved in March. That boosted personal income 21.1% after a drop of 7.0% in February.

A chunk of the cash was stashed away, with the saving rate soaring to 27.6% from 13.9% in February. Households have amassed at least $2.2 trillion in excess savings, which could provide a powerful tailwind for consumer spending this year and beyond.

The government’s generosity and expansion of the COVID-19 vaccination program to include all American adults is lifting consumer spirits, with a measure of household sentiment rising to a 13-month high in April.

Wages are also increasing, which should to help to underpin spending when stimulus boost fades.

In a separate report on Friday, the Labour Department said its Employment Cost Index, the broadest measure of labour costs, jumped 0.9% in the first quarter. That was the largest rise since the second quarter of 2007.

The ECI is widely viewed by policymakers and economists as one of the better measures of labour market slack and a predictor of core inflation as it adjusts for composition and job quality changes. Last quarter’s increase was driven by a 1.0% rise in wages, also the biggest gain in 14 years.

Wages in the accommodation and food services industry, hardest hit by the pandemic, soared 1.7%.

Despite employment being 8.4 million jobs below its peak in February 2020, businesses are struggling to find qualified workers as they rush to meet the robust domestic demand.

The strengthening demand and the dropping of last year’s weak readings from the calculation lifted inflation last month.

The personal consumption expenditures (PCE) price index excluding the volatile food and energy component increased 0.4% after edging up 0.1% in February. In the 12 months through March, the so-called core PCE price index increased 1.8%, the most since February 2020.

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