Americans Are Spending Less, Saving More as Tariffs Loom

After years of seemingly defying inflation and driving U.S. GDP growth, U.S. consumer spending showed signs of weakness in the first two months of 2025. After dropping more than 0.6 percent in January, real personal consumption expenditure barely bounced back in February, edging up just 0.1 percent or $16 billion on a seasonally adjusted, annualized basis.

The weaker-than-expected spending increase was driven by a decline in service spending - the first since January 2022 and a warning sign that consumers may be starting to cut back on discretionary spending. At the same time, consumers increased spending on durable goods, possibly making purchases earlier than planned to avoid higher prices widely expected as a consequence of new tariffs.

The latest report on Personal Income and Outlays also revealed that personal saving increased sharply for the second month in a row, as the personal saving rate, i.e. savings a s a percentage of disposable income climbed from 3.3 percent in December to 4.6 percent in February. While high personal savings can be a sign of excess disposable income, they can also be a sign of growing uncertainty. Consumers wary about the short-term economic outlook are more likely to postpone big purchases and shore up their savings, while confidence typically boosts spending.