American consumers reined in their spending and socked away their money in April following a tariff-fueled buying binge the month before, according to new data released Friday that also showed inflation cooled off again.
Friday’s report from the Commerce Department showed that consumer spending rose 0.2% last month, a weaker-than-anticipated reading but a notable retreat from March, when spending soared 0.7% as Americans front-loaded purchases — notably new cars — ahead of potential price increases from President Donald Trump’s tariffs.
In April, consumers saw a nice 0.8% boost to their incomes, a jump likely attributed to larger Social Security payments as well as continued resilience in the labor market; however, a lot of those funds were plunked into piggy banks: The personal saving rate leapt to 4.9% from 4.3%, according to Friday’s report.
“Just as you’d expect, consumers stayed away from the purchase of durable goods like clothing and cars and instead spent mostly on life’s necessities like housing, health care, and food services,” Chris Rupkey, chief economist at FwdBonds, wrote in commentary issued Friday. “This is a trade war report where the consumer is clearly gun-shy.”
The latest data also showed inflation moving closer to the Federal Reserve’s target of 2%. However, it also indicated that tariff-related price pressures may be already hitting consumers.
The Personal Consumption Expenditures price index was 2.1% for the 12 months ended in April, a slowdown from the 2.3% annual gain in March. On a monthly basis, prices rose 0.1%, a slight acceleration after holding steady in March.
The biggest price gains last month were seen in durable goods, which rose 0.5%.
Economists were expecting the PCE price index to rise 0.2% from March and to ease to an annual rate of 2.2%. Spending was expected to slow to 0.4%, according to FactSet.
Inflation is now back at its lowest rate in years, matching a 2.1% gain in September 2024 that was, at the time, a three-and-a-half-year low.
Excluding the volatile food and energy categories, the core PCE price index rose 0.1% from March and slowed to an annual rate of 2.5%, the lowest rate since March 2021.
Inflation is sitting just a hair’s breadth above the Fed’s 2% target; however, there likely will be no victory laps nor corks popped from the Fed: Inflation may have been on a cooling course, but the Trump administration’s tariffs — the bulk of which are in a temporary holding pattern — threaten to reverse that progress.
While the tariffs themselves remain in flux — especially following a US Court of International Trade ruling this week that blocked a large swath of them and a subsequent appeals court ruling that put them back into play — economists weren’t expecting the early wave of import duties to have an immediate effect on prices nor on the April inflation data.
“We’re looking at very backwards-looking data; we’re looking into April, and it’s hard to say (to what extent) the total effects of the tariffs have come through,” Dan North, senior economist at Allianz Trade US, said in an interview with CNN. “I think there’s a reasonable case to be made that each report is not going to be quite so rosy as this.”
And, with spending and incomes holding up for now, the Fed has the luxury of being able to continue to not have to rush through any interest rate cuts just yet, he said.
“The Fed would really like to see that core and the headline (inflation rates) going down a bit more, because if they cut rates, they might reignite that inflation flame that hasn’t gone out already,” he said.
There have been significant shifts in tariff policy, and some of the most aggressive duties were curtailed or paused; businesses front-loaded purchases, building up their pre-tariff inventory; and some costs from the initial waves of new tariffs might have been absorbed by retailers and manufacturers.
The latest data lands at a time when uncertainty is swelling about the extent to which Trump’s sweeping policies — including efforts to tack steep tariffs on most imported goods — could upend global order and the US economy.
But that massive uncertainty caused by Trump’s policies could negatively ripple through the economy by affecting how consumers and businesses spend.
“Uncertainty is an actual driving force in the economy, and on the business side, they’re shaking their heads saying, ‘we don’t know what to do; our customers are cutting their orders,’” North said. “Given that atmosphere and this continuous changing in the tariff situation, I see hiring really slowing down in the next couple of months.”
A batch of labor market data is due out next week, with the most critical piece being the May jobs report on Friday morning. Economists are still building their forecasts, but early estimates show they expect monthly job gains to slow sharply to around 125,000 from 177,000 in April and for the unemployment rate to tick up to 4.3%.
While economists have warned that the better-than-expected data seen in recent months is the calm before the storm, the economy is holding its own for now — despite the ongoing volatility and recession fears.
“I think it’s going to be a lot of ‘See, I told you,’” coming from the Trump administration, North said. “They’ll likely say that everything is going right, inflation is right, income is right, spending is right, and then the trade deficit in goods is cut in half.”
However, it remains to be seen how long this resilience lasts and to what extent the volatility weighs on the economy.
Stocks fell Friday after President Donald Trump said China has “totally violated” its trade agreement with the United States, sending another jolt to markets after a whiplash week of tariff developments.
Separate data released Friday by the Census Bureau showed that the United States’ trade deficit with its trading partners dropped by 46% last month.
Trade deficits capture the difference between a country’s exports minus imports. Last month, American exports grew by $6.3 billion, while imports declined by a whopping $68.4 billion.
The stunning decline in imports could mean retailers have less of an inventory buffer, leaving them less able to avoid paying future tariffs — and that could lead to price increases for US consumers.
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