US Consumer Spending Shows Resilience Despite Stubborn Inflation

The so-called core personal consumption expenditures price index, which excludes food and energy items and is favored by the Federal Reserve, rose 0.3% from June. From the prior year, the gauge picked up to 2.9%, the most since February.

A pickup in services prices seen in this report could fan concerns about the persistence of inflation, as it adds to expectations that President Donald Trump’s tariffs will filter through to goods prices in the coming months. For now, Americans continue to spend, but it’s unclear how long that momentum will last amid a high cost of living and a weakening job market.

The S&P opened lower, while the dollar and Treasury yields remained higher. Traders still expect the Fed to cut interest rates when they gather Sept. 16-17.

Speaking at the Fed’s annual Jackson Hole conference last week, Chair Jerome Powell carefully opened the door to a rate cut next month amid rising risks to the job market, though he noted the effects of tariffs on prices are “now clearly visible.”

Before that gathering, however, policymakers will receive additional reports on inflation and the labor market.

Services Pickup

The pickup in inflation was driven by higher costs for services, which rose by the most since February. That included a jump in portfolio management fees, reflecting a months-long stock market rally. Recreational services costs including live sports and entertainment also increased.

A closely watched metric of services inflation that excludes energy and housing rose 0.4%, the most in five months. Goods costs, meanwhile, declined.

In an effort to shield American consumers, some firms rushed to get goods into the country before tariffs kicked in, while others diversified their supply chains or chose to sacrifice their own margins. But with most levies now in place, many companies have stressed the need to pass more of those extra costs on to shoppers.

The acceleration in spending was in large part due to merchandise purchases, particularly for durable goods like cars, household furniture and sporting equipment.

Separate figures from the Commerce Department on Friday showed the merchandise trade deficit widened in July to the largest in four months. Imports jumped by the most since the start of the year.

While the labor market — the main engine behind household demand — has shifted into a lower gear, promotions like Amazon.com Inc.’s Prime Day offered a boost to goods spending.

What Bloomberg Economics Says...

“Even as consumer spending ticked higher, we think the gain mostly just reflects consumers taking advantage of discounts and promotions during a month of online sales events.”

— Estelle Ou, Eliza Winger and Stuart Paul

Retailers from Walmart Inc. to Home Depot Inc. and Dick’s Sporting Goods Inc. have expressed optimism about the resilience of demand. That said, consumer sentiment remains subdued as Americans anticipate tariff-driven price hikes and confront worsening job prospects.

While not adjusted for inflation, wages and salaries jumped 0.6%, the most since November. Real disposable income rose 0.2%. The saving rate was unchanged.

Government data due next week will offer additional clues on the direction of the labor market. Economists currently expect job growth to be less than 100,000 for a fourth month, marking the weakest stretch of employment figures since 2020. The unemployment rate is seen edging higher in August.

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Bloomberg News provided this article. For more articles like this please visit bloomberg.com.

Read more articles by Augusta Saraiva