Personal income rose 0.3% month-over-month (m/m) in December, in line with market expectations. All gains were in nominal terms, with personal income remaining flat after adjusting for inflation.
Consumer spending was also aligned with market expectations, advancing by 0.4% month-over-month in nominal terms and matching November’s pace. Most of the gain, however, was due to higher prices: real spending rose by just 0.1% m/m.
Examining the broad categories, spending on goods declined by 0.5% in real terms, weighed by reduced spending on cars and parts and furniture, while spending on services rose by 0.3% m/m.
With spending slightly outpacing income, the personal saving rate edged lower to 3.6% (down from 3.7% in November and 4.3% a year ago). This marks the lowest level of the saving rate since October 2022.
Inflation remains persistently above the Fed’s 2% target. Core PCE – the Fed’s preferred inflation gauge – rose by 0.4% in December, a notable uptick from 0.2% pace in November. In annual terms, core PCE inflation was up 3.0% year-over-year, up slightly from 2.8% pace seen in November.
Key Implications
Today’s release shows that consumers had a bit less spring in their step in the final quarter of 2025 that previously reported. This tells us that while the government shutdown didn’t detail consumer spending, it still weighed on activity, with real consumer spending advancing by 2.4% (annualized) in Q4, down from the 3.5% pace seen in Q3. Looking back at 2025, growth in consumer spending averaged 2.7%, down slightly from a 3% pace in 2024, suggesting consumer spending has remained resilient, despite heightened economic uncertainty and slowing labour market.
Looking ahead, we expect consumer spending to remain relatively robust at the start of 2026. Consumers should benefit from past interest rate cuts, some stabilization in the labour market, and wealth gains. The fiscal boost from higher OBBBA-related tax refunds—which could be on average $800–$1,000 higher than last fiscal year—will provide another tailwind to household income and spending (report).
 in Q4, down from the 3.5% pace seen in Q3. Looking back at 2025, growth in consumer spending averaged 2.7%, down slightly from a 3% pace in 2024, suggesting consumer spending has remained resilient, despite heightened economic uncertainty and slowing labour market.){kind=link}