U.S. consumers kept spending in July even as inflation stayed elevated, new data show. Spending rose 0.5% from June, a touch below the 0.6% forecast but an uptick from June’s 0.4%. The July gain came as summer sales events and back-to-school buying supported outlays, with durable goods such as automobiles and appliances driving much of the strength. When adjusted for inflation, spending rose 0.3% in July.
The personal consumption expenditures price index, the Federal Reserve’s preferred inflation gauge, rose 0.2% month over month, leaving the annual rate at 2.6%. The core PCE price index, which strips out food and energy, climbed 0.3% from June and posted a 2.9% annual gain. Market reaction was muted, with stock futures slipping modestly after the data release but trimming losses as traders digested the details.
Solid income growth underpinned the spending surge. Personal income rose 0.4% in July, helped by higher wages, while the saving rate held at 4.4%. Despite stronger spending, July marked the first month since March when spending exceeded income, a sign of consumer willingness to dip into savings or borrow to fund purchases when deals are in play, according to economists.
Durable goods led the July rebound, with real spending rising in categories such as furnishings and other home equipment, as well as recreational goods and vehicles. Auto-related purchases were a key factor in the durable goods uptick, boosting activity to the strongest month for durable goods since the pre-tariff spending spree in March. Still, some weakness persisted in services tied to travel and hospitality, where hotels and restaurant spending lagged.
Tariffs remain a factor shaping consumer behavior and pricing. Economists noted that while tariffs have not spurred a broad inflation surge, they are gradually pushing costs higher for some goods and services. The pattern described by analysts is one of a slow pass-through, with businesses absorbing part of the costs or spreading them over time. The overall inflation trajectory remains above the Federal Reserve’s desired pace, prompting discussion among economists about the path of monetary policy.
Looking ahead, the same economists warn that higher costs could prompt cost-cutting by businesses and potentially weigh on hiring if wage growth does not keep pace. One analyst described the economy as entering a “stagflation-lite” period—persistent inflation with slower growth and rising unemployment risks. Others emphasized that the labor market has shown resilience and that inflation coexists with continued consumer spending, offering a cautiously hopeful view for the upcoming months.
What this means for consumers and markets
– July’s spending strength shows that Americans remain willing to shop when deals are visible, even as inflation remains a constraint.
– The demand for big-ticket items suggests that households still expect value and that inventories and supply chains are adapting to tariff-related costs.
– With inflation running near the Fed’s target but above it, markets will scrutinize how wage growth and price pressures evolve in the coming months.
– The debate over the timing of Fed rate adjustments remains ongoing, with some economists anticipating policy easing later in the year if inflation cools and growth softens.
Summary
July’s data portray a still-resilient consumer, supported by wage gains and favorable deals, with durable goods leading the charge. Inflation remains a headwind, and tariffs are contributing to a slower pass-through of higher costs. The mix points to a cautious economy where consumer spending can stay solid, but policymakers and businesses will need to navigate a path between persistent price pressures and an uncertain growth outlook.
Positive takeaway
The persistence of consumer spending, especially on durable goods, signals confidence in personal finances and a willingness to spend on items that will endure. If wage growth continues and inflation cools gradually, the path to a steadier growth trajectory could improve as supply chains adjust to tariff dynamics.