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U.S. Personal Income & Spending (March 2025)

Ksenia Bushmeneva, Economist | 416-308-7392

Date Published: April 30, 2025

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Consumer Spending Rebounds in March, Income Growth Remains Robust

  • Both personal income and spending rose in March. Personal income advanced by 0.5% month-over-month (m/m), slightly ahead of consensus expectations for a 0.4% m/m gain. Consumers kept their purse strings open, with spending increasing by 0.7% on the month. With spending outpacing income, the savings rate declined to 3.9% from 4.1% in February. 
  • On an inflation-adjusted basis, spending rose 0.7%, following a lackluster performance in the prior two months, and the fastest monthly pace of growth since October 2021. Spending on goods led the way, rising by 1.3% as consumers rushed to buy cars ahead of tariffs. Spending on services also rose, gaining 0.4% on the month. 
  • Inflationary pressures eased last month. The Fed's preferred inflation metric, the core PCE price deflator was flat– a notable deceleration relative to February's 0.5% gain. In year-over-year terms, core PCE inflation slowed to 2.7% down from 3% pace in the prior month.

Key Implications

  • Consumer spending staged a rebound in March, as households rushed to purchase new vehicles ahead of the looming tariffs. Consumers are likely to continue frontloading their purchases in April, however, this will be a temporary upswing and will likely soon fizzle out. Today's GDP report showed that spending has already lost momentum in Q1 – expanding by just 1.8% (real, annualized), less than half the 4% pace seen in 2024 Q4. We expect consumer spending to continue to moderate in the second quarter, with growth slowing to 1.2% (annualized).  
  • While easing inflationary pressures offered a helping hand to consumers, the reprieve is likely to be short lived. Even as large businesses have been taking a slew of measures to avoid passing tariffs to consumers, such as building up their inventory, cost-cutting, and pressuring suppliers to absorb costs, this cannot continue indefinitely. Eventually higher costs or shortages of some goods will result in higher prices. Services will also not be spared as heightened uncertainty and a more pessimistic view of the labor market is prompting consumers to cut back on vacation plans and dining out as indicated in recent consumer sentiment surveys.

Disclaimer

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