Americans reined in their spending last month
The US economic engine sputtered in May: Consumer spending slowed for the first time since January, according to new data released Friday that also showed inflation heated up on an annual basis.
The Commerce Department report showed that consumer spending fell 0.1% last month after rising 0.2% in April. When taking inflation into account, spending declined by 0.3% for the month.
A nearly 50% drop-off in motor vehicle sales was a significant driver of the May spending retreat as consumers rushed to dealerships to buy cars in March and April, fearing that President Donald Trump's tariffs would send those costs soaring.
However, Friday's report also showed that consumers pulled back on spending at restaurants and hotels.
Consumer spending powers more than two-thirds of US economic activity, and economists have expressed concern that the steep tariffs on most imported goods will erode Americans' resiliency.
'Apart from autos, households are also shelling out less for services (notably restaurant meals), with volumes flat in May after little rise in April,' Sal Guatieri, senior economist at BMO, wrote in a note Friday. 'This could reflect some anxiety about the trade war.'
The Personal Consumption Expenditures price index was 2.3% for the 12 months ended in May, versus 2.2% in April. On a monthly basis, prices rose 0.1%, unchanged from April.
Economists were expecting the PCE price index to rise 0.1% from April, resulting in the annual rate ticking up to 2.3%. They expected spending to pick up slightly to 0.3%, according to FactSet.
Excluding the volatile food and energy categories, the core PCE price index rose 0.2% from April and ticked up to 2.7% on an annual basis.
This story is developing and will be updated.
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