Consumers Boosted Savings and Slowed Spending as Tariffs Loomed

April’s data on inflation and consumer activity show slowing price increases, a boost to savings and a deceleration in spending, too.

The Personal Income and Outlays data, released on Friday (May 30), indicates prices were up only slightly month on month and 2.1% year on year, though the full impact of tariffs, and the most recent pause with China, has yet to be felt.

The Bureau of Economic Analysis (BEA) report indicates that that personal income growth outpaced inflation and was up 0.8% on a monthly basis in April.

This marks an acceleration from the 0.7% registered in March and the Q1 average which also came out to 0.7%. As incomes grew, so too, did disposable income, which is measured after tax and which also gained 0.8%.

Personal spending, on the other hand, grew by a mere 0.2%, well below the 0.7% in March and coincidentally (or not) on par with the increase in consumer prices informed by BEA for the same period. This would imply consumers are only increasing their spending to keep their real consumption flat in the presence of higher prices.

In fact, only spending on services grew in dollar terms; spending on goods was down ever so slightly at 0.1% even in the presence of higher costs. As for price increases, the registered 12-month increase of the PCE index (which accounts for changes in spending habits, unlike the more commonly cited CPI) stood at 2.1% in April, its lowest since September 2024. Goods prices actually deflated at a rate of 0.4% versus April 2024, while services saw prices 3.3%.  Energy prices were significantly below the same month a year ago (-5.6%) while food prices stood 1.9% higher.

The relief to the family budget may prove temporary: As noted above, the impact of tariffs has yet to be felt fully, and a number of retailers and other firms have warned of higher input costs that are going to be passed along to consumers over time.

This outlays-related data indicates a shift in where consumers are allocating at least some of their spending, and pulling back on nonessential, tangible items.

As price increases slowed, as incomes grew, and as spending remained muted, it follows that as a result, the personal savings rate (portion of personal income unspent) grew for the fourth consecutive time to reach 4.9%, where that rate had been 4.3% in the previous month and, in fact, the savings rate is at the highest level seen in several months.

Real Disposable Personal Income and Real Personal Consumption Expenditures (i.e., net of price increases) grew 2.9% and 3.2%, respectively, in the 12 months ending in April, with a gap that reduced significantly compared to March, where expenses grew in real terms significantly faster than incomes (3.1% vs 2.1%). Q1 saw even wider margins. The stubbornness of the gap indicates that the balancing act is a tough one: as expenses, over the long term, have increased faster than income, there are only a few levers to pull: cut back on spending, or use credit to plug the gap.

We’ll know more about the “state” of consumer credit in early June when additional Fed data debuts. But April’s income and outlays details show that households paved savings where possible as tariffs became a fact of daily financial reckoning.

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