U.S. Consumer Spending Rises 0.6% in August, Driven by High-Income Households

In August, the United States experienced a steady increase in consumer spending, which played a pivotal role in maintaining the country's economic momentum. The U.S. Department of Commerce reported that consumer spending, which accounts for more than two-thirds of economic activity, grew by 0.6% month-over-month, slightly higher than the 0.5% increase in July. This growth was driven primarily by high-income households, whose wealth has been bolstered by strong stock market performance and high property values. The Federal Reserve's data for the second quarter showed that U.S. household wealth surged to 176.3 trillion dollars, setting a new historical high.

However, the situation is more challenging for low-income households, which are bearing the brunt of price increases due to import tariffs. Additionally, these households will face further strain as the federal government's Supplemental Nutrition Assistance Program (SNAP) budget cuts take effect. The chief U.S. economist at the Oxford Economics Research Institute noted that the concentration of spending among high-income households poses risks to future consumption growth, as it is heavily dependent on stock market and property values. This "wealth effect" can be a double-edged sword, driving consumption when asset prices rise but posing risks when they decline.

Economists predict that the pace of consumer spending growth will slow down by the end of the year due to rising prices. Despite the significant tariffs imposed by the Trump administration, inflation did not spike immediately due to businesses absorbing some of the costs and drawing down inventories. The Personal Consumption Expenditures (PCE) price index, a key inflation measure used by the Federal Reserve, rose by 0.3% month-over-month in August, up from 0.2% in July. On an annual basis, the PCE index increased by 2.7%, slightly higher than the 2.6% recorded in July. Excluding volatile food and energy prices, the core PCE index rose by 0.2% month-over-month and maintained a 2.9% annual increase, consistent with July's data.

The Federal Reserve, which uses the PCE index as its primary gauge for its 2% inflation target, recently resumed its easing policy by lowering the overnight benchmark interest rate by 25 basis points to a range of 4.00% to 4.25%. Federal Reserve Chairman Jerome Powell acknowledged the challenging environment, stating that inflation risks are tilted to the upside in the short term, while employment risks are tilted to the downside. The steady increase in consumer spending in August reflects the resilience of the U.S. economy amidst various challenges. The balanced growth in both goods and services expenditures, along with stable inflation rates, suggests that the economy is on a path to sustainable growth. As the Federal Reserve continues to monitor economic indicators, the steady performance in consumer spending will be a key factor in shaping monetary policy decisions. The ongoing strength in consumer spending is a positive sign for the economy, indicating that consumers remain confident and willing to spend, which is essential for maintaining economic momentum.