WASHINGTON — U.S. consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of the Trump administration’s tariffs faded, while monthly inflation maintained a moderate pace of increase.

The Commerce Department’s report on Friday likely will have no impact on near-term monetary policy as Federal Reserve Chair Jerome Powell told lawmakers this week that the U.S. central bank needed more time to gauge the impact of the import duties on prices before considering a resumption of interest rate cuts.

Business surveys have suggested tariffs could start driving up prices this summer, a sentiment shared by Powell and most economists. President Donald Trump’s sweeping tariffs, which have led businesses and households to front-run imports and goods purchases to avoid higher prices from duties, have muddled the economic picture, and the spending report offers no clarity.

“The report is a wash for the Fed and won’t alter its wait-and-see stance,” said Sal Guatieri, a senior economist at BMO Capital Markets. “The pullback in spending in May partly reflects payback from earlier tariff front-running, while the slightly warmer core price increase doesn’t settle the debate about how much tariffs will impact inflation.”

Spending on Services Posts Smallest Rise Since 2020

Consumer spending, which accounts for more than two-thirds of economic activity, dropped 0.1% last month after an unrevised 0.2% gain in April, the Commerce Department’s Bureau of Economic Analysis said. That was the second decline in consumer spending this year. Economists polled by Reuters had forecast consumer spending would edge up 0.1%.

Goods spending dropped 0.8% amid a 1.8% decline in outlays of long-lasting manufactured goods, mostly motor vehicles. Spending on nondurable goods like gasoline and food also fell, with the former reflecting lower prices at the pump.

Consumer spending on services ticked up 0.1%, the smallest gain since November 2020. Services outlays were restrained by decreases in spending on hotel and motel accommodation as well as at restaurants and bars.

There were also decreases in spending on financial services and insurance and transportation services. But households spent more on housing and utilities as well as healthcare.

The sharp slowdown in services outlays aligned with soft consumer sentiment and indicated that households were pulling back on discretionary spending.

Solid Wage Gains

The Atlanta Fed cut its GDP growth estimate for the second quarter to a rate of 2.9% from the previously projected 3.4% pace. The expected rebound in growth this quarter will not be a sign of economic strength given the wild swings in trade.

Economists warned it could take time for the tariff-related distortions to wash out of the economic data. Despite the weakness, an imminent collapse in spending is unlikely as wages increased by a solid 0.4% last month.

But personal income dropped 0.4%, the largest decrease since September 2021, as the lift from retroactive Social Security payments to some retirees who draw public pensions — such as former police officers and firefighters — waned. The saving rate fell to 4.5% from 4.9% in April.

“The saving rate is still close in line with its average over the past few years, underlining that consumers are not pulling back sharply on their spending,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics.

(Reporting by Lucia Mutikani; Editing by Paul Simao)