Consumer spending fell for first time in nearly two years

Consumer spending in the U.S. dropped 0.2% in January—the first monthly decline since March 2023.

The U.S. Bureau of Economic Analysis measures spending through the Personal Consumption Expenditures (PCE) index, and it decreased $30.7 billion. The bureau said that this reflected a $76.7 billion decrease in spending for goods and a $46.0 billion increase in spending for services.

Personal outlays—which is the sum of PCE, personal interest payment and personal current transfer payments—decreased $52.7 billion in January. 

Spending on goods dropped 1.2%. This figure was primarily due to decreased spending in the motor vehicle, recreational goods, household furniture, clothing and footwear, and food and beverages industries.

How will the Federal Reserve respond?

According to reporting by Reuters, financial markets believe the Federal Reserve will resume cutting interest rates in June, following a recent pause in January to assess the economic impact of policies implemented by a change in presidential administrations.

“The combination of sticky inflation and a potential growth scare, which is evident in this report, will likely present a worrisome monetary policy conundrum for the Fed,” said Olu Sonola, head of U.S. Economic Research at Fitch Ratings. “The outlook gets even murkier as the threat of tariffs permeates business and consumer confidence. We may be entering a ‘deer in the headlights’ moment for the Fed.”