February Consumer Spending Grows Less Than Expected; Annual Core Inflation Accelerates

10:23 AM EDT, 03/28/2025 (MT Newswires) -- Consumer spending rebounded last month, but the pace of growth fell short of Wall Street's expectations, while the Federal Reserve's preferred inflation metric unexpectedly accelerated, government data showed Friday.

Personal consumption expenditures rose 0.4% in February after declining 0.3% the month before, the Bureau of Economic Analysis said in a report. The Bloomberg-polled consensus called for a higher spending growth rate of 0.5%.

Goods spending turned positive last month, at 0.9%, as outlays on durables and nondurables rebounded. Services spending growth slowed down to 0.2% from 0.4% on a monthly basis.

"The subdued rise in spending in February confirms that real consumption growth is on track for sub-1% annualized growth in (the first quarter)," Oxford Economics Deputy Chief US Economist Michael Pearce said in remarks emailed to MT Newswires. "However, that softness was exacerbated by weather and a post-election slump in advocacy spending, and we expect some rebound in (the second quarter), despite the dampening impact of tariffs."

The annual headline PCE price index remained unchanged at 2.5% growth, meeting the Street's forecast. Monthly inflation held steady at 0.3% for the third consecutive month in February, in line with the market estimate.

The Fed's preferred core measure, which excludes food and energy, accelerated to 2.8% in February from the previous month's 2.7% growth, which was the Bloomberg consensus. Sequentially, the core measure advanced to 0.4% from January's 0.3% increase, which was the pace estimated by analysts.

Earlier in the week, the White House announced 25% tariffs on imported passenger vehicles and certain auto parts, while Bloomberg News reported that the Trump administration may impose duties on copper imports in the coming weeks.

Tariffs are expected to slow down real spending growth and increase prices in the coming months, according to Pearce.

"Our current baseline calls for consumer spending growth to slow to 2% this year, and core inflation to breach back above 3% by mid-year," Pearce said. "We think that combination will keep the (Federal Reserve) on extended pause, especially with inflation expectations showing increasing signs of becoming unanchored."

Last week, the central bank's monetary policy committee kept its benchmark lending rate steady for a second straight meeting, while downgrading economic projections through 2027.

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