Consumers are saving more and spending less than Trump’s tariffs loom | CNN Business
Introduction
US consumer spending showed signs of recovery in February, rising 0.4% after a post-holiday slump. However, stubborn inflation and looming Trump-era tariffs on imports continue to weigh on economic confidence, according to the latest Commerce Department data. Here’s what businesses and consumers need to know about shifting spending habits, price trends, and the risks ahead.
Key Inflation Data: Stubborn Price Pressures Persist
The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose 2.5% annually in February—unchanged from January. Monthly prices climbed 0.3%, reflecting persistent cost pressures.
- Core PCE Index (excluding volatile food/energy): Increased 0.4% monthly and 2.8% annually, up from 2.7% in January.
- Energy Prices: Fell 1.1% monthly, while food prices dipped slightly to 1.5% (from 1.6%).
Economists warn that inflation’s “sideways” movement complicates the Fed’s path to rate cuts. “Core inflation hasn’t budged in 10 months. The Fed is stuck waiting for clearer signals,” said Dan North, Allianz Trade economist.
Consumers Prioritize Savings Over Discretionary Spending
Americans tightened their budgets in February, signaling caution:
- Spending: Adjusted for inflation, spending rose just 0.1%.
- Savings Rate: Jumped to 4.6% (from 4.3% in January).
- Discretionary Cutbacks: Services spending (dining, travel) fell sharply, while goods purchases rose—possibly due to pre-tariff stockpiling.
“Consumers are jittery. High savings and weak service spending reflect fears of inflation and policy uncertainty,” noted Kathy Bostjancic, Nationwide’s chief economist.
Trump Tariffs Loom Over Economic Outlook
While February’s data offered short-term optimism, economists warn that Trump’s proposed tariffs on autos and imports could derail progress:
- Impact on Prices: Tariffs may spike costs for everyday goods, worsening inflation.
- Consumer Sentiment: 66% of Americans expect higher unemployment—the gloomiest outlook since 2009.
“Trump’s trade policies risk stalling the economy,” warned Chris Rupkey, FwdBonds economist. Fed Chair Jerome Powell also acknowledged uncertainty around tariffs’ ripple effects.
Key Takeaways for Businesses and Consumers
- Inflation Isn’t Cooling Fast Enough: Core PCE’s uptick suggests the Fed may delay rate cuts until late 2024.
- Tariff Preparedness: Businesses should diversify suppliers; consumers could see higher prices on electronics, vehicles, and imported goods.
- Spending Shifts: Focus on essentials over luxuries may persist amid economic uncertainty.
What’s Next?
With inflation sticky and tariffs pending, households and businesses must stay agile. Monitor Fed updates, diversify budgets, and brace for potential price hikes in key sectors like autos.
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