March was good for incomes, and tariffs sped up spending. But it's worse for now and the future

It got swallowed up by news of the decline in GDP, but yesterday also had strong spending figures in March, to try to front-run what was to come.

A car-buying frenzy, stoked by tariff fears, drove US consumer spending in March to its biggest monthly gain in more than two years, new data showed Wednesday.

Consumer spending leapt 0.7% from February, according to a Commerce Department report released Wednesday that showed Americans shelled out last month for durable goods, particularly automobiles.

The Commerce Department’s Personal Income and Outlays report — which provides the most comprehensive federal data on spending, income as well as the Federal Reserve’s preferred inflation gauge — further reinforced what the recent retail sales data and anecdotal evidence have been indicating: Americans picked up their spending and likely pulled forward some purchases out of fear that President Donald Trump’s tariffs will raise prices in the months to come.

You can see the big jump in autos leading the $134.5 billion (annualized) increase in spending from March.

On the other hand, the drop in gasoline prices for March cut into the spending increases, and overall I’d say it was a pretty good month for spending.

On top of the strong numbers, January’s decline in Personal Consumption Expenditures wasn’t as bad as originally reported, revised to a drop of just over $1 billion (annualized) instead of a decline of $56.6 billion. And February’s increase in spending was revised up, increasing by more than $112 billion instead of the originally reported increase of less than $88 billion. It would indicate that consumption in GDP might be revised up as well, when we see the 2nd release of those numbers at the end of May.

On the other side, incomes were revised down by $14 billion for January and $6.5 billion for February. That downward revision was driven by a lower-than-originally estimated amount of Medicaid benefit payments, while income from wage and salaries didn't change much at all, and continued with decent growth of 0.5% for March and 1.1% for Q1.

For the inflation part of that report, the positive news is that March’s figures flattened out, with total PCE inflation going down by 0.04% and “core” (non-food and energy) inflation rising by a puny 0.03%. The jumps in the previous 2 months meant that the Q1 rate of inflation was up by 3.6% overall and 3.5% of core, and it makes the Federal Reserve have to make a tough call as to whether inflation is picking up in 2025 because companies were trying to grab profits ahead of tariffs, and the underlying situation was stable (as flat March inflation would indicate).

Conversely, if the higher inflation of January or February meant overall prices were heading up even before the tariffs hit, and that the economy is going to slow down even further to avoid an inflationary cycle of 5-6% or higher – which would set the stage for ongoing stagflation and discourage rate cuts in the short term.

The income and spending report reiterates that if it wasn’t for all the distortions brought on by Tariff Man, we’d probably have seen the 2024 trend of decent economic and income growth continuing in Q1 2025. But because of the randomness and general idiocy coming from the White House, it led to a surge of imports throughout the first 3 months of the year, and likely pulled forward some purchases of autos and other large items into March that would have happened at a later time.

It tells me that when the imports stop coming here and the prices go up from the tariffs, we will likely have a larger cutback in spending for April and future months than we’d otherwise would have had. And that’s before we account for the lack of new orders that’ll be coming due to so much inventory piling up, and the job losses pick up.