January consumption expenditures ticked-down just a tad (see first chart below). Given unusually cold weather and perhaps some post-holiday restraint, this is not unprecedented nor necessarily the start of a pattern. January 2024 expenditures ($15,812.6 billion 2017 dollars) were lower than December 2023, but by last month US personal consumption expenditures had grown to $16,283.6 billion 2017 dollars).
The December 2024 to January 2025 decline in consumption expenditures was led by a 40-plus-percent drop in auto sales. December is almost always strong for auto sales and January is almost always weak. Looking under the auto industry’s hood suggests mixed results for January 2025. According to the Bureau of Economic Analysis in January US consumers spent a little less on goods and a little more on services. This included 4.6 percent less on food and beverages, 11.6 percent more on gasoline (here and here) and other energy goods, and 13 percent more on eating out and travel accommodations.
I like to track Food At Home (FAH) consumption expenditures. Pre-pandemic I perceived shifts in real — inflation adjusted — PCE for food to be meaningful indicators of consumer distress or delight. Post-pandemic I have mostly been amazed at the step-wise increase in how much more food Americans consume (see second chart below). These sort of grocery store sales suggest to me a substantial slice of US consumers are not looking for deep cuts on discretionary expenses.
Delighted, distressed, or desperate these consumption patterns should be helpful to watch if and when more rigorous tariffs are imposed. A ten percent increase on imports from China was put in place in early February, a second ten percent has been promised. Late January tariffs of 25 percent on many (not all) goods from Mexico and Canada were suspended for negotiations. The negotiation period is scheduled to conclude on March 4. Steel and aluminum tariffs are scheduled to be implemented on March 4. Studies are underway to set reciprocal tariffs. Other tariffs have been discussed.
Tariffs add costs and sometimes delays. Increased costs usually increase consumer prices. Depending on the size and timing of tariffs — and the accessibility and price of replacement products — tariffs will often influence consumer behavior. High volume, high velocity supply chains tend to depend on persistent demand and supply capacity specifically organized around persistent demand. Sudden shifts in demand can be disruptive. The scope and scale of disruption depends on the depth and duration of the demand shift, as demonstrated by both of the charts below for several months following February 2020.
