US Consumer Spending Barely Rises, Key Inflation Gauge Picks Up

In the ever-evolving landscape of the US economy, consumer spending has long been a barometer of economic health. However, recent data reveals a puzzling dichotomy: while consumer sentiment remains subdued, spending continues to rise, albeit at a slower pace. This article delves into the nuances of this trend, exploring the underlying factors and their implications for investors and the broader economy.



The latest data from the Commerce Department shows that consumer spending increased by a modest 0.2% in August 2025, falling short of the expected 0.3% rise. This slowdown, however, does not tell the whole story. Despite the slight deceleration, the broader economic indicators paint a picture of resilience. The unemployment rate, for instance, remains at a near-historic low of 4.2%, and private sector wages have surged by more than 25% since December 2019, outpacing inflation and driving real income gains across various income brackets.

The resilience of consumer spending is further bolstered by a higher saving rate, which stood at 4.8% in August 2025. This indicates that consumers are not solely relying on savings to fund their spending, which bodes well for future economic stability. Additionally, the personal consumption expenditures (PCE) price index increased by 2.2% in the 12 months through August 2025, the smallest year-on-year gain since February 2021. This slowing inflation rate, combined with solid wage gains, suggests that consumers have the financial means to continue spending, albeit at a slower pace.

The implications for future economic stability are mixed. On one hand, the slowdown in consumer spending could be a sign of caution among consumers, who may be concerned about future economic uncertainties. On the other hand, the strong employment rates and wage growth provide a solid foundation for continued economic activity. The Federal Reserve's decision to keep interest rates unchanged, as indicated by Christopher Waller, an influential member of the Fed’s board, suggests that policymakers are monitoring the economic data closely and are prepared to adjust policies as needed to maintain stability.

Given the mixed signals from consumer sentiment and spending patterns, investors should adjust their strategies by focusing on sectors that are resilient to economic fluctuations and by understanding the new dynamics of consumer behavior. Here are some key points to consider:

1. Understand the "Value Now" Consumer: Consumers are now optimizing their purchases, spending money in ways they think yield the greatest value, and ascribing value to purchases in new ways. This means that consumers are not just chasing low prices but are getting the best bang for their buck. Investors should look for companies that offer value for money and can adapt to changing consumer preferences. For example, companies that offer high-quality products at competitive prices or those that provide unique experiences that consumers are willing to splurge on.

2. Focus on Resilient Sectors: Despite the mixed signals, certain sectors have shown resilience. For instance, the service sector, particularly travel and hospitality, has seen robust demand. Royal Caribbean Group reported robust quarterly earnings, with CEO Jason Liberty stating, "The acceleration of consumer spending on experiences (has) propelled us towards another outstanding quarter." Investors should consider sectors like travel, dining, and entertainment, which have shown strong spending even in uncertain times.

3. Monitor Economic Indicators: Investors should keep a close eye on economic indicators such as unemployment rates, wage growth, and inflation. For example, the unemployment rate was 4.2 percent in November 2024, and private sector wages are up more than 25 percent since December 2019, outpacing inflation. These indicators suggest that consumers have the means to spend, which can support sectors reliant on discretionary spending.

4. Diversify Investments: Given the uncertainty, diversification is key. Investors should spread their investments across different sectors and asset classes to mitigate risks. For instance, while the service sector is thriving, sectors like goods spending, particularly on durable goods, have also shown resilience. In the July-September quarter, Americans ramped up spending on durable goods like furniture, appliances, jewelry, and luggage.

5. Adapt to Changing Consumer Behavior: Consumers are categorizing their spending into three groups: economizing, maintaining, and splurging. Investors should identify companies that can cater to these different spending behaviors. For example, companies that offer budget-friendly options for economizing consumers, reliable products for maintaining spend, and premium experiences for splurging consumers.

6. Consider the Impact of Interest Rates: The Federal Reserve's decisions on interest rates can significantly impact consumer spending. For instance, the Fed has signaled that they will keep their key interest rate unchanged, but they are monitoring the economic data for any sign that inflation could reignite and require further rate hikes. Investors should be prepared for potential changes in interest rates and their impact on consumer spending.

In summary, while the recent slowdown in consumer spending may indicate some caution among consumers, the broader economic indicators, such as employment rates and wage growth, suggest a relatively stable economic environment. The implications for future economic stability are positive, as long as these indicators continue to support consumer spending and overall economic activity. Investors should focus on sectors that offer value for money, monitor key economic indicators, diversify their investments, and adapt to changing consumer behaviors. By doing so, they can navigate the current economic landscape more effectively and make informed investment decisions.