US Consumer Spending Powers On Even as Inflation Persists

Tiffany Wilding, economist at PIMCO, reacts to strong new consumer spending data and what it reveals about the health of the US economy.

US personal spending rose at a solid clip in August for a third month, suggesting consumers continued to power the economy despite elevated inflation.

Consumer spending, adjusted for changes in prices, increased 0.4% last month, according to Bureau of Economic Analysis data out Friday.

The so-called core personal consumption expenditures price index, which excludes food and energy items and is favored by the Federal Reserve, rose 0.2% from July. From the prior year, the gauge held stubbornly at 2.9%.

The consecutive strong gains in consumer spending add to evidence of a solid economy in the current quarter, building upon even greater growth in the prior period than previously thought. However, maintaining such momentum hinges in large part on the labor market, which has shown signs of faltering with slower hiring and more moderate wage gains.

The recent trend in spending “lacks firm foundations,” Samuel Tombs, chief US economist at Pantheon Macroeconomics, said in a note. With tepid expectations for real net incomes going forward, households “will have to reduce their saving rate further in order to fund growth in real spending.”

Americans are also still dealing with sticky inflation, which risks staying elevated as President Donald Trump’s tariffs trickle through the economy. While many companies initially held off on raising prices as they worked through built-up inventories, profit margins are at risk unless firms pass along some of the higher costs.

With inflation well above the Fed’s 2% target, several policymakers are hesitant to cut interest rates further. While the September employment report will be a key data point at the central bank’s next policy meeting, it’s unclear when officials will have those numbers in hand with a government shutdown looming.

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