EconoFACTS

May 30, 2025 | 09:35

U.S. Strong Personal Income Growth Keeps Consumers on Track

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

The contours of the personal income and spending report for April were about as expected. A cautious consumer combined with subdued inflation. But it was the sizzling growth in personal incomes that got my attention. Personal income growth has been outdistancing person spending all year, unlike in the fourth quarter when spending exceeded income gains. In April, the gap between personal spending and income growth widened even further. This should give U.S. consumers the fuel they need to keep spending through the shock of tariff-induced higher goods prices.

Personal income unexpectedly increased a robust 0.8% in April, easily beating the consensus forecast looking for a 0.3% gain and an improvement from an already strong and upwardly revised 0.7% increase in March. Wage and salary gains were robust, rising 0.5% for the third month in a row. Personal incomes were further boosted by an increase in Social Security payments last month, reflecting payments associated with the Social Security Fairness Act. Disposable personal incomes also gained a stout 0.8% last month, enough to push the personal savings rate up to 4.9%, its highest level since May 2024.

Personal spending growth slowed in-line with expectations, increasing 0.2% in April and down from 0.7% in March. Liberation Day tariffs spooked consumers and sent confidence reeling last month even as tariff front-running in previous months ran out of steam. Real spending increased a modest 0.1% following a 0.7% increase in March. Over the past three months real personal spending has been running at a subdued 1.6% annualized pace. Real durable goods spending fell 0.8%, pushing overall real goods spending down 0.2%. Real services spending downshifted a tenth of a percentage point to a still respectable 0.3%.

PCE inflation, the Federal Reserve’s preferred measure of consumer inflation, was well-behaved last month, coming in right in-line with forecasts. This was the second consecutive month of relatively little inflation. PCE prices increased 0.10% and core prices rose 0.116% unrounded in April. Food prices fell 0.3%. From a year ago, core PCE inflation moderated to 2.5% from 2.7% in March. The headline rate fell to 2.1% from 2.3%, almost touching the Fed’s 2.0% goal. Unfortunately, the good news on PCE inflation is not expected to last as retailers and producers get set to pass along at least some of their tariff-induced cost increases.

Bottom line, consumers appeared to be saving for a rainy day last month as the Liberation Day tariff shock shook consumer confidence. On the bright side, robust nominal and real personal income growth since the beginning of the year have allowed consumers to squirrel away more savings that should help them weather the coming storm of higher tariff-induced goods prices in the months ahead.

Table 1 - United States — Personal Income and Consumption

(month/month % change)

Source: BMO Economics, Haver Analytics