Consumer Spending Dips as Tariff Effect Fades

The temporary spending increase from pre-tariff purchases has started to disappear as U.S. consumer spending decreased in May. The Commerce Department reported a 0.1% decrease in spending while core inflation increased moderately which supports expectations for future monetary policy relaxation.

The consumer spending data showed a 0.1% decrease after April’s 0.2% increase and it became the second consecutive monthly decline this year. The decline in durable goods spending led the market decrease because vehicle purchases showed the largest decrease at 1.8%. The consumption of non-durable goods including food and fuel showed negative changes.

Federal Reserve Chair Jerome Powell informed lawmakers that the central bank requires additional time to evaluate tariff effects before making any policy adjustments. Most economists agree the economic picture is still distorted by earlier buying sprees meant to beat rising prices.

BMO Capital Markets economist Sal Guatieri stated that the current data does not influence the Federal Reserve’s decision to maintain its policy pause. The inflation situation remains ambiguous while consumers pay back their initial purchases made before tariffs took effect according to his observation.

Economists predict that supply chain tariffs will become fully integrated into the system during the summer months when the real inflation test will occur. The weak spending data could push policymakers toward a dovish stance if the broader economic momentum continues to stall.