Consumer spending fell in January, but it isn’t clear whether that is due to one-time factors or that Americans have been rattled by the prospect of tariffs and other steps by the Trump Administration.

The January Personal Income and Outlays report, issued Friday morning by the U.S. Department of Commerce Bureau of Economic Analysis, showed a 0.2 percent decrease in consumer spending. The monthly report is an economic activity indicator closely monitored by policymakers, economists and investors. 

The decrease “ was particularly disheartening,” said Stan Shipley, an economist at Evercore ISI, an independent investment advisory firm. But “it was not unexpected, or should not have been unexpected, as the retail sales report fell sharply in January, too.”

Spending on motor vehicles and parts fell by $41.1 billion, followed by recreational goods and vehicles, down  $14.9 billion. This was not a complete surprise since the retail sales report at mid-February, already showed a 0.9 percent decline in January. 

However, some economists say the underlying fundamentals will lead to a rebound in coming months.

“We think you’ll get a rebound in spending in the month of February,”  said Shipley. “We think retail sales will probably go up 0.6 or 0.7 percent. That’s not a great rebound after falling 1 percent. Consumers are being hesitant here.”

The drop in spending was accompanied by a growth in personal savings, which grew by 4.6 percent over December. 

John Herrmann, founder of Herrmann Forecasting LLC, said the report suggests consumers have ample money to spend, and that is being overstated. “Yes, consumption was soft,” he said, “but going forward, consumption will rebound a little and income will slow a little, so this saving rate is going to come down.”

The report also noted that personal income had increased by 0.9 percent, primarily because of transfer receipts led by a cost-of-living adjustment in Social Security benefits. 

“We will not get something this big again any month for the rest of the year 2025, ” said Herrmann.  “Even next month, it’s going to fall back toward trend. And trend is closer to 0.3, 0.4.” 

The Personal Income report measures the total income of everyone living and working in the country: wages, interest income, Social Security and unemployment insurance.

 “The income increase could be adequate to give us stronger growth later in the quarter,” said Christopher Low, chief economist at FHN Financial.

On the other hand, with the growing fear that tariffs announced by President Trump will affect businesses all over the country, an increase in imports showed strong growth – 0.9 percent in January – which economists say will affect the GDP in the first quarter of the year.

Personal consumption expenditure, the Federal Reserve’s preferred measure of inflation, was almost 0.3 percent, which is still higher than the Fed’s inflation target of 2 percent a year.  Prices also increased by 0.3 percent over December and 2.5 percent from the same month last year. 

“Consumers have seen the job prospects weaken here,” Shipley said, “and so they’re not out there pushing the economy ahead like they were last year.”

Consumer sentiment in January appears to be affected by the economic uncertainties of the Trump Administration. While the decrease in spending suggest prudence among consumers, rising saving rates indicates that many are adopting a wait-and-see approach before committing new purchases. Concerns over tariffs and inflation have likely contributted to this scenario.