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

U.S. personal income in April remained flat, significantly missing the consensus expectation of a 0.4% increase. This marks the second instance in three months that income growth has stalled, with a 0.5% decline when factoring in revisions to previous months. Despite this, personal consumption expenditures (PCE) rose by 0.5%, aligning with economists' forecasts. Annually, personal income has grown by 2.5%, while spending has increased by 5.9%.

The increase in spending was notably driven by a 0.6% jump in goods consumption, largely due to higher gasoline and other energy-related costs, alongside increased expenditure on housing and utilities. Services spending also contributed to the overall rise, increasing by 0.4%. This continued consumer spending amidst stagnant income growth has led to a reduction in the personal savings rate, which fell to 2.6% in April—its lowest level since mid-2022.

The inflation landscape has shown a temporary uptick. The overall Personal Consumption Expenditures (PCE) deflator, the Federal Reserve's preferred measure of inflation, increased by 0.4% in April, pushing its year-over-year growth to 3.8%. This represents the highest annual rate since early 2023. The "core" PCE deflator, which strips out volatile food and energy prices, rose by 0.2% for the month, with its year-over-year increase now standing at 3.3%. This is a notable acceleration from the 2.6% pace observed for the twelve months ending in April 2025.

While personal income was flat overall, a closer look at the components reveals some nuanced trends. Private sector wages and salaries saw a 0.3% increase in April. However, this gain was offset by a decline in farm proprietors’ income, which returned to more typical levels after a one-time boost from the Farmers Bridge Assistance Program in March. Disposable personal income, which is income after taxes, declined by 0.1% in April, or 0.5% when accounting for revisions, though it remains up 2.6% from a year ago.

Adjusting for inflation, "real" consumption saw a modest increase of 0.1% in April, and has risen 2.1% over the past year. Looking ahead, the sustained deceleration in the M2 money supply, which grew 0.5% in April and 4.7% over the past year, suggests that any current inflationary pressures might be transient. For comparison, M2 grew at an average of 6.0% annually in the low-inflation decade preceding 2020, implying that consumers' ability to sustain spending beyond their current income by drawing on savings or tax returns may be limited in the long run. In other economic news, initial jobless claims rose by 5,000 to 215,000 last week, and continuing claims increased by 15,000 to 1.786 million, indicating a modest pace of job growth.

Key terms

1. **Personal Consumption Expenditures (PCE) Deflator:** A measure of the average increase in prices for all goods and services purchased by consumers in the U.S. It is the Federal Reserve's primary inflation gauge.

2. **Core PCE Deflator:** The PCE deflator excluding food and energy prices. This measure is used to get a clearer picture of underlying inflation trends by removing volatile components.

3. **M2 Money Supply:** A broad measure of the money supply that includes cash, checking deposits, savings deposits, money market mutual funds, and other time deposits. It indicates the total amount of money available in an economy.