Revised Q1 GDP came in at –0.5%, marking the first contraction since the pandemic and signaling a sharp slowdown in consumer strength. Real personal consumption rose just 0.5%—well below the prior 1.2%—with travel, recreation, and financial services all revised lower. Services, once a growth pillar, contributed only 0.3 points to GDP as spending on recreation turned negative.
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May’s PCE report reinforced the trend: real consumption fell 0.3%—the steepest drop of 2025—amid declines in dining, transport, and international travel. Wage growth held at +0.4%, but disposable income dipped and the savings rate slid to 4.5%. While core PCE stayed soft at +0.2%, the overall data signals that consumers may struggle to absorb ongoing price pressures—especially with tariffs expected to hit harder this summer. The result: renewed pressure on the Fed to cut.

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