US consumer spending falters in April as inflation cools and savings rise

US consumer spending barely rose in April as households tightened their wallets and diverted funds into savings. This reportedly reflects growing unease over the country’s economic trajectory amid erratic tariff policies and legal roadblocks to US President Donald Trump’s sweeping trade duties.

According to Reuters, citing data from the US Commerce Department, consumer spending, the backbone of the US economy climbed just 0.2 per cent in April, a steep slowdown from March’s 0.7 per cent gain.

The deceleration suggests that Americans, rattled by recent tariff shocks and broader uncertainty, are preparing for leaner times.

Spending weakens as tariff anxiety rises

While services spending held firm—buoyed by housing, utilities, healthcare, and hospitality—goods spending softened considerably.

Shoppers cut back on vehicles, apparel, and recreational goods, which had seen a pre-emptive boost in March due to stockpiling before new tariffs, Reuters reported.

President Trump’s new import duties, largely targeting Chinese goods, had been slashed to 30 per cent from 145 per cent through mid-August, following a ruling by a US trade court, as per Reuters.

The court found that the president had overstepped his authority. However, a federal appeals court temporarily reinstated most of the duties the next day, plunging the economic outlook into further ambiguity.

“The Liberation Day tariff shock clearly spooked consumers,” said Scott Anderson, Chief US Economist at BMO Capital Markets, in a statement to Reuters. “They’re now saving for a rainy day.”

Savings jump to one-year high

That caution was reflected in the personal saving rate, which jumped to 4.9 per cent in April, the highest since March 2024, from 4.3 per cent in March, according to the US Commerce Department’s Bureau of Economic Analysis (BEA), as cited by Reuters.

Adding to the economic unease, the US economy shrank at an annualised rate of 0.2 per cent in Q1 2025, the first contraction in three years. This decline was mainly attributed to a surge in imports before tariffs kicked in, according to Reuters, referencing official government data.

In a separate report, the US Census Bureau stated that the goods trade deficit shrank by 46 per cent to $87.6 billion in April. This was due to a sharp decline in imports, which fell by $68.4 billion to $276.1 billion, while goods exports rose by $6.3 billion to $188.5 billion.

Inflation eases, but Fed remains on edge

Inflation remained subdued in April. The PCE Price Index, the Federal Reserve’s preferred inflation measure, rose 0.1 per cent in April after remaining flat in March, as per the BEA data cited by Reuters.

On a yearly basis, overall PCE inflation increased 2.1 per cent, while core PCE, which excludes food and energy, climbed 2.5 per cent, marking the smallest increase since March 2021, as per Reuters.

Despite these modest gains, the Federal Reserve remains cautious. According to minutes from its May 6–7 meeting, reviewed by Reuters, Fed officials highlighted concerns about rising short-term inflation expectations.

Some policymakers had reportedly warned that these expectations could influence businesses to raise prices and push long-term inflation even higher.

Trade deficit shrinks but sentiment deteriorates

According to the US Census Bureau, the collapse in imports and slight export gains contributed to the shrinking trade deficit.

However, economists interviewed by Reuters cautioned that the downturn in imports may be temporary and tied to the unpredictable implementation of trade tariffs.

Markets reacted nervously. As per Reuters, US stocks opened lower, Treasury yields rose slightly, and the dollar strengthened against major global currencies on Thursday.

Outlook clouded by policy unpredictability

With Trump’s tariffs caught in a legal tug-of-war and inflation trending downward but unstable, the economic recovery remains fragile.

Economists quoted by Reuters suggested that while softer inflation offers some relief, uncertainty surrounding tariff rulings is expected to weigh heavily on both consumer confidence and business investment in the months ahead.