Households cut spending in January, biggest drop in almost 4 years`
San José, CA – Consumers cut back on purchases in January 2025, the largest decline since February 2021. The Bureau of Economic Analysis report on Personal Income and Outlays released February 28 said that household spending fell by 0.5%, adjusted for inflation. This is much greater than the 0.2% drop expected.
The fall in spending was led by durable goods, especially cars and recreational vehicles, which fell by 3% from December. Concerns about rising inflation from Trump’s tariff plans, a slowing labor market as seen in rising claims for unemployment insurance, and concern about DOGE cuts, beginning with $420 million in government contracts, all weighed on consumer willpower to spend.
Consumer spending in the United States has become more and more reliant on purchases of the top 10% of households by income. Fueled by gains in the stock market, cryptocurrencies and real estate, the top 10% have unleashed what the Wall Street Journal called a “cash cannon.” At the same time, most people are being squeezed by higher prices, including interest costs and home insurance, which are not counted in official government inflation figures. Rising debt problems, longer lines at food banks and drooping consumer confidence measures are all signs of this.
While President Trump likes to compare himself to President McKinley, his attempts to cut the trade deficit through higher tariffs and decreasing government spending by slashing federal employees and cutting contracts is more like Herbert Hoover, whose policies helped turn a bad recession into a depression in the 1930s.