U.S. Personal Income & Spending (July 2025)

Consumer spending rises in July, but core PCE inflation edges higher too

• Consumer spending and income growth both improved in July. Personal income rose 0.4% month-over-month (m/m), a hair above the market consensus forecast. Growth in wages and salaries picked up to 0.7% m/m from 0.1% in June, while government transfer payments were flat on the month. 
• Consumer spending grew 0.5% m/m in nominal terms, coming on the heels of an upwardly revised 0.4% gain in the prior month. With income and spending growing at a similar pace, the personal savings rate remained unchanged at 4.4%. 
• Spending was up 0.3% m/m on an inflation-adjusted basis, up from a 0.1% gain in the month prior. Goods spending strengthened, advancing by 0.9%, owing in part to a robust gain in vehicle sales last month. Real spending on durable goods rose by 2.0% m/m, while spending on non-durable goods rose more modestly (+0.3%). Meanwhile, services spending remained muted, edging up by just 0.1% and matching June's performance.  
• Core PCE – the Fed's preferred inflation gauge – rose by 0.3% m/m on the month, matching June's growth. In annual terms, core PCE inflation rose to 2.9% from 2.8% seen a month prior and 2.7% in May.

Key Implications

• A revised GDP report released earlier this week showed that consumer spending grew at an annualized rate of 1.6% in Q2, slightly higher than the previously reported 1.4%. Today’s report builds on that positive news, indicating that consumers entered the second half of the year with decent momentum. This suggests that third quarter growth in consumer spending could come in around 1.7% - an upgrade relative to our previous 1.1% tracking. This is still a relatively modest pace and this week’s consumer confidence data showed households remain uneasy. Sentiment towards labor market prospects is deteriorating, and more consumers expect their incomes to decline. This cautiousness is reflected in the ongoing softness in services spending. 
• So far, the worst of the households' inflation fears have not materialized. However, given the delays and various changes in tariff implementation, it’s still early in the game. The latest inflation report showed that core goods prices are gradually rising, with two-thirds of goods categories experiencing price gains over the past three months. Today's report also showed core PCE is accelerating on an annual basis. Until now, businesses have largely avoided passing on higher costs by stockpiling inventories, substituting away from highly tariffed imports, or absorbing the increases themselves. These strategies aren’t sustainable indefinitely, and we expect greater passthrough of tariff-related price increases in the coming months.