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

Consumer Spending and Income Decline in May

• Both consumer spending and income growth came in weaker than expected in May. Personal income decreased 0.4% month-over-month (m/m), well below the Bloomberg consensus of +0.3% m/m. Wages and salaries continued to grow at a solid pace, but transfer payments showed a sharp pullback, driven by a decrease in government Social Security payments due to the Social Security Fairness Act. Consumer spending was also soft, declining by 0.1% m/m. With income declining more than spending, personal savings rate fell to 4.5% (from 4.9% in April). 
• On an inflation-adjusted basis, spending declined by 0.3%. A sizeable drop in goods spending (-0.8% m/m) primarily drove this trend, as vehicle sales continued to cool in May following tariff-related frontloading in months prior. Services spending also softened, posting no growth in May. 
• Inflationary pressures picked up a bit, with core PCE – the Fed's preferred inflation gauge – rising by 0.2% m/m, up from the 0.1% pace seen over the previous two months. In annual terms, core PCE ticked up to 2.7% pace – from 2.6% the prior month.

Key Implications

• Consumer spending was weak in May, as tariff front-loading eased, and services spending continued to cool. This broad-based slowdown has pushed our tracking of Q2 consumer spending growth to 1.3% (annualized), down from our earlier 1.7% projection.
• Looking ahead, we expect consumer spending to remain weak in the third quarter as consumers tighten their purse strings amid some expected cooling in the labor market and lingering economic uncertainty. Prices on consumer goods are also expected to move higher through the summer as companies draw down on existing inventory stockpiles and higher input costs begin to squeeze profit margins.