U.S. Personal Income Stalls in April, Consumption Rises 0.5%

U.S. personal income registered no change in April, significantly below the anticipated 0.4% increase. This flat reading, which becomes a 0.5% decrease when considering revisions to prior months, marks the second time in three months that income growth has stalled. Despite the overall stagnation in income, personal consumption expenditures rose by 0.5% in April, aligning with consensus forecasts. Over the past year, personal income has expanded by 2.5%, whereas spending has seen a more robust increase of 5.9%. This divergence between income and spending suggests a potential strain on household finances as consumers dip into savings to maintain spending levels.

The underlying details of the income report show a mixed picture. Private sector wages and salaries experienced a modest 0.3% increase in April. However, this gain was entirely offset by a notable decline in farm proprietors’ income, which returned to more typical levels after a one-time surge in March due to bridge payments from a government assistance program. On the spending front, the 0.5% rise in personal consumption was broadly based, with significant contributions from gasoline and other energy goods, as well as housing and utilities. Spending on goods, inclusive of energy costs, jumped 0.6% for the month, while services expenditures increased by 0.4%.

With consumption outpacing income growth for the month, the personal savings rate fell to 2.6%, its lowest point since mid-2022. While this lower savings rate permits increased spending in the short term, it raises concerns about long-term sustainability given the modest 2.5% annual growth in personal income. Accelerating inflation further complicates the economic landscape. The overall Personal Consumption Expenditures (PCE) price deflator, the Federal Reserve’s preferred inflation gauge, rose 0.4% in April, bringing its year-over-year increase to 3.8%. This marks the highest annual inflation rate since early 2023. The "core" PCE deflator, which removes volatile food and energy components, increased 0.2% in April, with its year-over-year growth reaching 3.3%, a notable acceleration from the 2.6% pace observed in the twelve months ending April 2025.

The inflation outlook has been temporarily exacerbated by geopolitical events, and the Federal Reserve will be closely monitoring these developments as it considers future monetary policy. A crucial indicator for understanding sustained inflationary pressures—or lack thereof—is the M2 measure of the money supply, which saw a 0.5% increase in April, bringing its annual growth to 4.7%. This growth rate is considerably lower than the approximately 6.0% annual pace observed in the decade preceding the COVID-19 pandemic, a period characterized by low inflation. This constrained growth in M2 suggests that while consumers can temporarily draw on savings or utilize tax refunds to spend beyond their immediate income, without a significant expansion in the money supply, any elevated inflation is likely to be transitory. Separately, initial jobless claims increased by 5,000 last week to 215,000, and continuing claims rose by 15,000 to 1.786 million, indicating a continued moderate pace of job growth.

Key terms

1. **Personal Consumption Expenditures (PCE) Deflator**: A measure of inflation that tracks the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is the Federal Reserve's preferred inflation gauge.

2. **Disposable Personal Income (DPI)**: The amount of money that households have available for spending and saving after income taxes have been accounted for.

3. **M2 Money Supply**: A broad measure of the money supply that includes M1 (cash, checking deposits) plus savings deposits, money market mutual funds, and other time deposits. It acts as an indicator of future inflation.