Durrant Pate/Contributor
Latest economic data released Friday by America’s Commerce Department suggests the US economy is maintaining its growth momentum from the April-June quarter.
The report indicates signs of the economy’s resilience, evident in other data this week showing low layoffs and strong demand by businesses for equipment, which would argue against the Federal Reserve cutting interest rates again this year. Consumer spending, which accounts for more than two-thirds of economic activity, rose 0.6% last month after an unrevised 0.5% advance in July.
Strong consumer spending contributed to gross domestic product growing at a 3.8% annualised rate in the second quarter, the fastest in nearly two years. Before the consumer spending data, the Atlanta Fed was forecasting GDP rising at a 3.3% rate in the third quarter.
The Commerce Department’s Bureau of Economic Analysis (BEA) says US consumer spending increased slightly more than expected in August as households went on vacation and dined out, keeping the economy on solid ground as the third quarter progressed, while inflation continued to steadily pick up. Spending was boosted by outlays on recreation services and transportation, which includes airline travel.
Also, spending on financial services and insurance rose, likewise housing, utilities and healthcare. Spending on services advanced 0.5%, matching July’s gain.
Spending marching ahead
Households also bought recreational goods and vehicles, clothing and footwear, and spent more on gasoline and other energy goods as well as food and beverages. Goods outlays shot up 0.8% after rising 0.6% in July. Spending has marched ahead despite the significant slowdown in the labour market.
Consumption is being driven by high-income households as a robust stock market and still-elevated home prices boost their wealth. Fed data this month showed household wealth jumped to a record $176.3 trillion in the second quarter.
However, lower-income households are struggling, and bearing a large share of the burden from higher prices on goods from import tariffs, but more pain lies ahead when cuts to the federal government’s Supplemental Nutrition Assistance Program, commonly known as food stamps, take effect.
Spending and income numbers were slightly higher than expected. The personal consumption expenditures (PCE) price index posted a 0.3% gain for the month, putting the annual headline inflation rate at 2.7% Excluding food and energy, the more closely followed core PCE price level was 2.9% on an annual basis after rising 0.2% for the month.
Personal income increased 0.4% for the month, while personal consumption expenditures accelerated at a 0.6% pace. Both were 0.1 percentage point above the respective estimates.
Personal Income and Outlays, August 2025
Personal income increased $95.7 billion (0.4 per cent at a monthly rate) in August, according to estimates released today by the U.S. Bureau of Economic Analysis.
- Disposable personal income (DPI)—personal income less personal current taxes—increased $86.1 billion (0.4 per cent) and personal consumption expenditures (PCE) increased $129.2 billion (0.6 per cent).
- Personal outlays—the sum of PCE, personal interest payments, and personal current transfer payments—increased $132.9 billion in August.
- Personal savings were $1.06 trillion in August, and the personal saving rate—personal savings as a percentage of disposable personal income—was 4.6 per cent.
The jump in current-dollar personal income in August primarily reflected increases in compensation and personal current transfer receipts. The $129.2 billion increase in current-dollar PCE reflected a rise of $77.2 billion in spending on services and $52.0 billion in spending on goods.
From the preceding month, the PCE price index for August increased 0.3 per cent. Excluding food and energy, the PCE price index increased 0.2 per cent. From the same month one year ago, the PCE price index for August increased 2.7 per cent. Excluding food and energy, the PCE price index increased 2.9 per cent from one year ago.
Inflation being held tight
Core inflation rate held at 2.9% in August on an annual basis after rising 0.2% for the month. This is in line with estimates from the BEA.
Although the Fed targets inflation at 2%, the readings are unlikely to change course for policymakers who indicated they see two more quarter percentage point reductions before the end of the year.
Though the Fed targets inflation at 2%, the readings are unlikely to change course for policymakers who last week indicated they see two more quarter percentage point reductions before the end of the year.
The Feds uses PCE as its forecasting measure for inflation as it believes the tool provides a wider view than others, such as the consumer price index, and takes into account changes in consumer spending habits.
The Commerce Department’s report indicates that President Donald Trump’s tariffs have had only a limited pass-through effect on consumer prices. Though many economists expected Trump’s expansive levies to juice prices, companies have relied on a mixture of pre-tariff inventory accumulations and cost-absorbing measures to limit the impact.
Goods prices increased 0.1% while services rose 0.3%. Food showed a gain of 0.5% while energy goods and services jumped 0.8%. Housing costs posted a 0.4% rise. Moreover, the data showed that consumers have been resilient despite the round of tariffs, continuing to spend strongly as incomes have held up.
Comments