U.S. Consumer Spending Rises 0.5% in July as Core PCE Inflation Hits 2.9%

U.S. consumers have maintained a persistent spending trajectory in July, bolstered by events such as Prime Day and the back-to-school shopping season, despite sustained inflationary conditions. Data released by the Commerce Department indicates a 0.5% increase in consumer spending from June, slightly under the predicted 0.6% rise based on consensus estimates.

The Personal Consumption Expenditures (PCE) price index, a critical inflation measure tracked by the Federal Reserve, experienced a 0.2% monthly increase, maintaining a 2.6% annual inflation rate. This aligns with economists' forecasts, who anticipated a similar 0.2% monthly rise with the annual rate unchanged.

Core data shows the core PCE price index, excluding food and energy costs, ascended to 2.9% in July from 2.8% in June, consistent with market expectations. This illustrates enduring price pressures across the economic landscape.

The U.S. Bureau of Economic Analysis reports that personal income surged by $112.3 billion, marking a 0.4% increase on a monthly basis. After accounting for taxes, disposable personal income also climbed 0.4%, to $93.9 billion. Concurrently, personal consumption expenditures (PCE) grew by $108.9 billion or 0.5%, reflecting a vibrant consumer spending environment amid persistent inflation.

In July, personal outlays also increased by $110.9 billion, encompassing PCE, personal interest payments, and personal current transfer payments. The personal saving rate remained at 4.4%, with total personal savings amounting to $985.6 billion.

This rise in current-dollar personal income can largely be attributed to gains in employee compensation. Notably, spending on services elevated by $60.2 billion, while expenditure on goods rose by $48.7 billion. The PCE price index saw a 0.2% rise in July, and the core PCE price index, excluding food and energy, observed a 0.3% uptick.

Annually, the PCE price index increased 2.6% year-over-year in July, with the core PCE showing a 2.9% rise compared to the previous year. Such data underscores ongoing inflationary patterns that the Federal Reserve monitors meticulously in shaping future monetary policies.

Wage and salary increments, in addition to supplements, predominantly drove July's rise in personal income. Private sector wages swelled by $77.5 billion, with service-producing industries contributing $77.4 billion and goods-producing industries $0.2 billion. Government wages also increased by $5.1 billion. Employer contributions led to a $14.3 billion increase in supplements to wages and salaries.

April through June revisions in personal income estimates reflect newly amended data regarding employment, working hours, and earnings from the Bureau of Labor Statistics. These revisions also integrate updated Medicaid benefit information from the Centers for Medicare & Medicaid Services.

Adjusted for inflation, consumer spending climbed 0.3%, stimulated by income growth, as highlighted by the latest data from the Bureau of Economic Analysis. This indicates robust consumer expenditure resilience against the backdrop of inflation. Analysts predict that the core PCE inflation's continuous rise to 2.9% year-over-year in July may set the stage for the Federal Reserve to weigh a rate cut at their forthcoming meeting.

Collectively, the core PCE price index's ascent to a five-month high signals persistent inflationary pressures amid robust personal income and consumption, depicting an economy with underlying resilience. Market expectations for a potential 25 basis point rate cut by the Federal Reserve in September are expected to remain, driven by these recent economic developments.