US consumer spending increased marginally in April, with households opting to boost savings amid mounting economic uncertainty because of a constantly changing tariff landscape.

The report from the Commerce Department on Friday suggested the economy struggled to rebound early in the second quarter after contracting in the January-March quarter for the first time in three years. Gross domestic product could, however, get a lift from a sharp contraction in the goods trade deficit last month as the front-running of imports to beat tariffs faded.

Inflation was muted in April, with a measure of underlying price pressures posting its smallest annual increase in four years. But that was unlikely to encourage the Federal Reserve to resume cutting interest rates soon as import duties are expected to raise prices. Economists say the inflationary effects of tariffs have not yet shown as businesses are probably still selling inventory accumulated before President Donald Trump embarked on his aggressive trade policy campaign.

A U.S. trade court on Wednesday blocked most of Trump's import duties from going into effect in a sweeping ruling that the president overstepped his authority. They were, however, temporarily reinstated by a federal appeals court on Thursday, adding another layer of uncertainty over the economy's outlook.

"There is clear evidence that consumers are battening down the hatches," said Olu Sonola, head of U.S. economic research at Fitch Ratings. "The Fed will welcome the favorable inflation reading in this report, but they are likely to interpret it as the calm before the storm."

Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.2% last month after an unrevised 0.7% jump in March, the Commerce Department's Bureau of Economic Analysis said. That was in line with economists' expectations.

Spending was supported by outlays on services, mostly housing and utilities, healthcare as well as restaurants, hotels and motel stays. But goods spending softened amid cutbacks on purchases of motor vehicles and parts, clothing and footwear as well as recreational goods and vehicles.

Pre-emptive buying of goods ahead of Trump's sweeping import tariffs helped to push spending higher in the prior month. Most of the tariffs have been implemented, though higher duties on goods have been delayed until July and mid-August.

Economists have argued that Trump's aggressive trade policy will sharply slow economic growth this year and boost inflation.

Minutes of the U.S. central bank's May 6-7 meeting published on Wednesday noted "participants judged that downside risks to employment and economic activity and upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases." The Fed has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December.

Financial markets expect the Fed to resume rate cuts in September. The economy contracted at a 0.2% annualized rate in the first quarter after growing at a 2.4% pace in the October-December quarter, mostly depressed by a flood of imports.

With most of the tariffs in place, imports are collapsing, helping to compress the goods trade deficit by 46.0% to $87.6 billion in April, a separate report from the Commerce Department's Census Bureau showed.

Goods imports decreased $68.4 billion to $276.1 billion. Exports of goods increased $6.3 billion to $188.5 billion. The shrinking goods trade deficit, if sustained, suggests trade could provide a major boost to gross domestic product this quarter after slicing off a record 4.90 percentage points in the first quarter.

But businesses do not appear to be restocking, with wholesale inventories unchanged last month and stocks at retailers dipping 0.1%. That would offset some of the boost to GDP from trade.

"If imports dropped off and inventories did not fall to match, then GDP growth will be stronger," said Carl Weinberg, chief economist at High Frequency Economics.

"However, we will be surprised if stockpiles of goods do not drop hard before the second quarter is over."

Stocks on Wall Street were trading lower. The dollar rose versus a basket of currencies. US Treasury yields fell.

Saving rate jumps

The saving rate jumped to a one-year high of 4.9% from 4.3% in March as consumers socked away much of the 0.8% rise in personal income, which reflected Social Security retirement payments to some retirees who draw public pensions - such as former police and firefighters. Wages increased 0.5%.

Though inflation was benign in April, consumers' inflation expectations remained elevated. The Fed minutes showed some policymakers assessed that "could make firms more willing to raise prices."

The Personal Consumption Expenditures (PCE) Price Index edged up 0.1 per cent after being unchanged in March. It was lifted by a 0.1% gain in goods prices, mostly recreational goods and vehicles as well as furnishings and durable household equipment. Goods prices dropped 0.5 per cent in March.

The cost of services rose 0.1 per cent after gaining 0.2 per cent in March. Services inflation was last month curbed by a sharp drop in financial services and insurance as well as recreation. But prices for housing and utilities continued to rise while the cost of transportation services rebounded.

In the 12 months through April, PCE prices increased 2.1% after advancing 2.3% in March. Stripping out the volatile food and energy components, the PCE price index climbed 0.1% last month following an upwardly revised 0.1% gain in March.

The so-called core PCE inflation was previously reported to have been unchanged in March.

In the 12 months through April, core inflation rose 2.5%. That was the smallest advance since March 2021 and followed a 2.7% increase in March. The Fed tracks the PCE price measures for its 2% inflation target.

"The increased tariffs have not yet worked their way into the consumer inflation readings, but we anticipate that the improved inflation trend will reverse in the second half of the year as companies are forced to begin passing along a portion of the increased tariffs in order to protect profit margins," said Kathy Bostjancic, chief economist at Nationwide.