Consumer spending decelerated in April despite a modest acceleration in income growth. Personal income advanced by 0.8% month-over-month (m/m), well ahead of consensus expectations for a 0.3% m/m gain. This strength, however, did not filter through to spending, which cooled to a gain of 0.2% on the month. As a result, the personal savings rate rose to 4.9% – it’s highest level in a year.
On an inflation-adjusted basis, spending grew by a modest 0.1% m/m after a particularly strong performance in March. A decline in goods spending (-0.2% m/m) primarily drove this trend, as March’s outsized vehicles sales volumes moderated slightly in April. Services spending growth also softened, but remained stable at 0.3% m/m.
Inflationary pressures changed little in April, with core PCE matching the 0.1% m/m gain seen in March. In annual terms, core PCE fell to 2.5% – its lowest level in four years
Key Implications
Consumer spending came off the burner in April as the implementation of reciprocal tariffs weighed on consumer confidence and began to bring an end to the front-loading behavior we had seen in March. Moving forward, we expect consumer spending to grow at a modest pace of 1.8% in the second quarter as the economy continues to adapt to a higher cost environment.
On the price front, we saw the Federal Reserve’s preferred inflation metric – core PCE – continue to ease in April. However, moving forward it is likely that the tariff policies in effect will begin to influence consumer prices. We expect that barring an alteration in tariff composition, core PCE will rise above 3% by the second half of this year. The federal court rulings this week against the bulk of the administration’s tariffs, while subsequently stayed pending appeal proceedings, adds an additional layer of uncertainty that is likely to prevail over businesses, the labor market, and by extension consumer spending in the months ahead.
