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lite.cnn.com - on gopher - inofficial
ARTICLE VIEW:
Americans kept spending last month despite elevated inflation
By Alicia Wallace, CNN
Updated:
12:58 PM EDT, Fri August 29, 2025
Source: CNN
US consumers kept spending in July, even as inflation remained elevated
that month, new data showed Friday.
Consumer spending rose 0.5% from June, according to Commerce
Department data released Friday. That’s slightly below expectations
for a 0.6% bump but represented a slight pickup from the , according
to FactSet consensus estimates.
July is typically a month filled with summer sales events, notably
Amazon’s Prime Day, as well as a key month for back-to-school
spending. However, spending on cars and financial services (bolstered
by the strong stock market performance) drove the lion’s share of
last month’s spending gains, Friday’s report showed.
When factoring in inflation, spending rose 0.3% last month, an
acceleration from a tepid 0.1% gain in June.
“Consumer spending is solid, and goods inflation remains moderate for
now as the tariff war has yet to slow the economy appreciably or lead
to a worrisome outbreak of inflation that could worry markets,” Chris
Rupkey, FwdBonds chief economist, wrote Friday in a note to investors.
The Personal Consumption Expenditures price index — the inflation
gauge the Federal Reserve uses for its 2% target rate — rose 0.2%
on a monthly basis, which kept the annual rate at 2.6%.
The core PCE price index, which excludes the volatile food and energy
categories and is considered a better indicator of underlying inflation
trends, rose 0.3% from June (matching the pace seen the prior month)
and saw its annual rate accelerate to 2.9% from 2.8%.
Stocks were lower Friday morning but pared some losses after the data
release. Dow futures were down 100 points, or 0.21%. S&P 500 futures
fell 0.23% and Nasdaq 100 futures slid 0.44%.
The July inflation data was right in line with what economists had
expected.
Wage gains helped keep Americans spending
Solid income growth helped to provide fuel for resilient US consumers,
whose spending powers more than two-thirds of America’s economic
activity.
Personal income rose by 0.4% last month (marking an acceleration from
0.3% in June), a reflection of higher wage gains, the report showed.
The savings rate held steady at 4.4% last month.
While both spending and income rebounded last month, July also marked
the first month since March when monthly spending exceeded income,
noted Heather Long, chief economist at Navy Federal Credit Union.
“This is an encouraging sign that American consumers are still
willing to open their wallets when they see deals,” she wrote.
And, in July, the appetite for spending was largely directed in the
area of durable goods — products like appliances, cars and the like
are that are meant to last for several years.
Auto-related purchases played a key role in the durable goods rebound;
however, real (inflation-adjusted) spending also picked up modestly in
categories such as furnishings and other home equipment as well as
recreational goods and vehicles.
July marked the biggest monthly increase in durable goods since
Americans’ pre-tariff spending spree in March, noted Wells Fargo
economists Tim Quinlan and Shannon Grein on Friday.
“Spending on these big-ticket items was flattish in April before
posting back-to-back declines in May and June, raising concerns about
the tariff impact on durable goods spending,” they wrote in a note
posted Friday. “Those worries may fade a bit after today’s report
showed durable goods spending rebounded in July rising 1.9% in the
month.”
However, they also noted that Friday’s report included a continuation
of another trend showing how tariffs are starting to weigh on
consumers: They’re pulling back on discretionary spending.
Recreational services spending posted the smallest monthly gain of any
services category, and spending at hotels and restaurants fell last
month, they noted.
Entering a ‘stagflation-lite’ period
The inflation trajectory outlined in Friday’s Personal Income and
Outlays report mirrors that of what was seen in the closely watched
Consumer Price Index as well as the Producer Price Index.
Prices are rising more than they typically should (and more than
desired by the Fed), and to the end consumer.
“The real hit (from tariffs) is in the next six months,” Navy
Federal Credit Union economist Long told CNN in an interview Friday.
“The reason it’s been so slow is the middle class doesn’t have
extra room in their budgets to absorb higher costs.”
This is a different environment than 2022, when households were quite a
bit more flush from the extra savings they built up during the pandemic
and the stimulus payments received during that time, she said.
“A lot of brands and retailers and restaurants were shocked that they
could keep raising prices, and people were not pushing back,” Long
said. “Now, consumers are pushing back, and that’s a big part of
the story of why, even at this point as the inventories run down,
we’re seeing a more muted pass-through of the tariffs.”
The tariff-driven price increases were expected to be a slow boil: US
businesses loaded up their warehouses prior to the tariffs going into
effect; many of the announced tariffs were delayed, reduced or
contained many product exemptions; companies along the supply chain are
letting their profit margins eat some of the costs; and other tariffs
are still going into effect.
Tariffs weren’t expected to drastically reaccelerate overall
inflation — but the pace of price hikes remaining elevated for the
coming year could present some challenges of their own for the economy,
Long said.
“The United States is entering a stagflation-lite period,” she
said, noting an economic environment with high inflation, .
The concern moving forward, Long said, is that the higher costs will
lead to cost-cutting efforts by businesses.
“I do agree that the Federal Reserve needs to cut in September and
needs to cut again in December, because while there’s not an
inflation crisis brewing, there is a lot of potential for a layoff
crisis to start,” she said.
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